Marks & Spencer’s underlying profit before tax has fallen 3.9% to £623m in the year to March 29, falling below that of rival Next for the first time.
The drop in profits come as M&S saw group sales climb 2.7% to £10.3bn, while UK sales rose 2.3%. This was powered by food however, with general merchandise – which is made up largely of clothing and where the retailer has put much of its focus in the last 12 months – flat.
Changes over the year in its clothing business have included improved quality, a greater distinction between the “good, better, best” options and fewer overall styles supported with the high profile ‘Leading Ladies’ campaign.
“After a year of changes our customers are noticing the difference, with clothing returning to growth in the fourth quarter for the first time in three years on a like-for-like basis,” M&S said.
Like-for-likes in the UK rose 0.2%, although general merchandise fell 1.4%. International sales rose 6.2% while multichannel sales climbed 22.8%.
Gross margins in general merchandise fell 110bps to 50.7%, with M&S noting this was caused by “a challenging clothing market, with unseasonal conditions and high levels of promotional activity”.
M&S blamed the same factors for its drop in profits, down to £623m for the year. This compares with Next, which saw pre-tax profits increase 11.8% to £695.2m in the year to January 25.
Underlying operating profit also fell, down 4.7% to £741.9m.
Chief executive Marc Bolland said: “We are focused on improving our performance in general merchandise and were pleased to see early signs of improvement… Three years ago, we recognised the scale of investment required to transform our business, investing to strengthen our foundations and improve our customer offer. We are making solid progress on this journey and are now focused on delivery.”
Of current trading, the business noted that the “improving trend in clothing sales we saw in the fourth quarter has continued in our stores”, although noted that M&S.com will take “four to six months to settle in , and, as a consequence, will have some impact on general merchandise performance” in its first quarter, which will be reported on July 8.