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Rowe's M&S 'fightback' is yet to deliver, say analysts

As Marks & Spencer posted a 63.5% plunge in profit before tax in the 52 weeks to 1 April and a 2.8% decline in clothing and home sales, Drapers rounds up the reaction from retail analysts.

John Ibbotson, director at Retail Vision, said the results were “awful”: “With inflation eating into the profits of the once reliable food offering, and a string of one-off expenses slicing into profits elsewhere, the net result has been to send pre-tax profits tanking by nearly two-thirds. M&S remains a dysfunctional dichotomy: premium food with dowdy clothing.

“The second phase of [chief executive] Steve Rowe’s turnaround strategy was supposed to deliver a fightback, closing stores and reallocating floor space from clothing to food. But it’s not working fast enough. M&S has too many high street stores in the wrong locations, and too much competition in both fashion and food, online and instore.”

Julie Palmer, partner at turnaround specialist Begbies Traynor, said: “After reporting a strong Christmas trading period, achieving its first underlying growth in clothing and home sales for nearly two years, Marks & Spencer has failed to maintain this positive momentum into the new year, with a difficult fourth quarter across all business lines resulting in a significant drop in full-year profits.

“With more consumers choosing to purchase both fashion and food online, alongside increased competition in its clothing division from value retailers such as H&M and Primark, M&S has a tough balancing act to manage if it is going to attract new shoppers to its stores and sales channels, while being careful not to ostracise its core customer base.”

However, others were more positive.

Jonathan Pritchard and John Stevenson, retail analysts at Peel Hunt, said the outcome was “nicely ahead of expectations”: “We think like-for-like [sales] in general merchandise will surprise to the upside this year as M&S continues to implement change that will drive shoppers to the stores and, more importantly, to the tills when they get there.”

Nicla Di Palma, equity analyst at Brewin Dolphin, said: “Marks & Spencer’s restructuring plan seems to be on track and, while like-for-like sales were very weak in the fourth quarter, this was partly as a result of the difficult consumer environment but partly also due to a conscious decision by management to reduce promotional activity.

“Anecdotal evidence suggests that consumer perception of M&S’s clothing quality has improved, and hopefully this will mean more full-price sales in the future.

“The consumer environment, especially for clothing purchases, remains really tough in the UK, and we could potentially see a decline in the market this year and next. Marks & Spencer’s decision to close some of its clothing and home stores does make sense, as the consumer is more likely to purchase online.”

Jon Copestake, chief retail and consumer goods analyst at The Economist Intelligence Unit, said: “The retailer faces the same challenges that it has for much of the last decade, notably a structural decline in sales of clothing and homewares as the brand struggles to keep pace with competitors in fast fashion. The steepness of the decline is exaggerated slightly by writedowns and restructuring costs that form part of [Rowe’s] ongoing turnaround plan.

“A quarterly decline in clothing and homeware sales of almost 6% is of a concern and cannot simply be put down to the timing of Easter. However, interestingly a 64% decline in profits actually managed to exceed market expectations, which highlights how low the bar has been set for M&S.”



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