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M&S clothing sales dip as overhaul takes its toll on year-end profits

Marks & Spencer’s rollercoaster ride hit another dip Wednesday as the UK retail giant said its turnaround efforts have “come with a cost”.

That translated to annual pre-tax profits tumbling 63.5% to £176.4m on a comparable 52-week basis. Underlying pre-tax profits dipped 10.3% to £613.8m in the year to April 1. You’d have expected its share price to take a hit on release of the downbeat news, but the market reacted kindly, rising modestly in early trading.

M&S said that hefty earnings dip was mostly down to store opening/restructuring costs, calendar shifts and investment in the fashion offer.

At least international profit, before adjusted items, rose 15.4% to £64.4m. But that came as a result of the decision to exit owned stores in 10 loss-making markets.

So how were those all-important Clothing & Home sales? For the year, they fell 2.8%, and dipped 3.4% on a comps basis. Sales also fell 5.9% in Q4, reversing the revival seen in Q3, when sales rose 2.3%.

M&S said the timing of its December sale also hit final quarter trading which, when combined with the Easter impact, shaved around 3.8% off Clothing & Home sales.

Related gross margin rose 105 basis points with full-price sales growing 2.7%. It said the “expected” year-end revenue drop of 2.8% was also “due to planned reduction in promotions and clearance sales.”

Online sales, however, rose 4.9% with online sales penetration increasing to 17%. That came as loyalty programme members bought more goods than ever, with demand for kids’ footwear and bras showing good results.

Overall group revenue for the year, including food ops, rose 2.2% to £10.62bn.

CEO Steve Rowe said: “Last year we outlined a comprehensive plan to build strong foundations for the future. We said we would recover and grow Clothing & Home, continue with our plans for Food growth, remove costs and simplify the business. We achieved a huge amount in the year and while there is still much to do, I am pleased with our progress and we remain on track.”

Rowe said the retailer has made improvements to its Clothing & Home product and proposition, and its customers “have noticed”. He said M&S is starting to stabilise market share “and importantly has seen full-price market share growth, as we removed excessive discounting.”

He added: “As we anticipated, the planned restructuring of M&S has come with a cost and has impacted profits, but the business is still strongly cash generative and we reduced our net debt.”

The retailer’s new approach to its fashion offer centres on targeting its core customer with “wardrobe essentials” rather than chasing trends.

Under its new ‘Spend It Well’ brand message the retailer said it has “reshaped” its Clothing & Home proposition, including a more consistent colour palette, improved fit, 18% price reductions on a number of like-for-like lines, reduced promotional activity and 10% fewer lines.

Rowe said: “We are encouraged by early evidence that our strategy is working,” highlighting that rise in full-price sales and “total market share stabilising” in Q4.

He also said that sales in M&S’s top 100 lines were up 7% and sales in “areas of focus”, such as kids’ footwear, were up 10% while its bra market share grew again to 34.9%.

Looking ahead, the retailer said Wednesday that it believes the changes it has made are “particularly relevant in the context of a clothing market which declined in 2016/17, and where the outlook remains uncertain.”

That means M&S is continuing in its quest to improve style and fit will remain its “core strategy,” Rowe said.

“In addition, having made a significant investment in price, we will ensure our prices remain competitive while continuing to reduce the number of promotions and clearance sales”, while “focusing on improving customer experience across its channels,” he added.

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