Marks & Spencer set to report dip in profits

MARKS & Spencer is set to report another dip in profits next week as the retailer's clothing and food divisions come under pressure during a major restructuring.

M&S is expected to report a dip in profits. Picture: Johnston Press
M&S is expected to report a dip in profits. Picture: Johnston Press

The high street giant is tipped by City analysts to book a fall in underlying pre-tax profit of as much as 14 per cent to £188 million for the first half of the year.

Consensus forecasts point to a pre-tax profit of £203 million , compared with £219.1 million in the same period last year.

Like-for-like sales at the retailer’s troubled clothing and home division are expected to drop 1.2 per cent, while comparable food revenue is set to fall 2 per cent.

The falling sales will reflect the impact of a painful five-year restructuring programme, which is being spearheaded by M&S chairman Archie Norman and chief executive Steve Rowe.

The duo have been seeking to save costs through store closures and shutting distribution centres as part of a wide-ranging efficiency drive as the company’s financial performance deteriorates.

Under the plan, M&S said in May it will shut more than 100 clothing and home outlets by 2022 as it accelerates the programme that will see thousands of jobs put at risk.

Around 29 stores have closed to date. Earlier this year, M&S revealed that it planned to close two Yorkshire stores as it looks to continue modernising its UK store estate. The company announced that stores in Bridlington and Keighley were to close as part of these changes. Bridlington’s deputy mayor, Coun Colin Croft, said there were always long queues at the seaside store, adding: “It’s dreadful; I’m very disappointed because it is one of the town’s anchor stores.”

Keighley mayor Coun Mohammed Nazam said he was “shocked and saddened”, adding: “I was born in Keighley and have lived here for 40 years and there has always been an M&S, my father and my grandfather shopped there.”

Speaking at the time, Sacha Berendji, director of retail at M&S, said: “We’re committed to transforming M&S for our customers, colleagues and shareholders. Stores will always be an integral part of our customer experience, alongside M&, but we have to ensure we have the right offer in the right locations.”

Graham Spooner, investment research analyst at The Share Centre, said: “Marks’ shares have largely traded sideways since full-year results in May.

“The company said it expected profit margins at its clothing and home business to improve this year so the market will be looking out for that in the latest update.”

In May, M&S saw full-year profits collapse as costs associated with the store closure plan weighed on the firm’s bottom line.

The retailer reported a 62.1 per cent fall in pre-tax profit to £66.8 million in the year to March 31 as it was dragged down by £321.1 million in costs linked to closures.

Mr Spooner said investors will be looking out for any further costs at its half-year update.

“The May results were overshadowed by the news of a major restructuring which involves the closure of 100 stores so any news on progress with that, and the costs associated, will also be of interest to investors.”

MARKS & Spencer has strong links with Yorkshire.

It can trace its roots back to 1884, when Michael Marks set up his Penny Bazaar in Leeds Kirkgate Market. Ten years later he joined forces with Tom Spencer, who was born in Skipton.

In the company’s early years, Michael Marks concentrated on the bazaars while Thomas Spencer had responsibility for the management of the central office and warehouse, the receipt and onward transmission of the goods to the bazaars, and their simple accounting. In 1928, the St Michael trademark was introduced. In 1959, M&S made headlines when it became the first No Smoking retailer. In 1971, M&S trialled frozen food, which proved to be a hit with shoppers. Today, the M&S Company Archive is stored in the Michael Marks Building at the University of Leeds. The collection contains more than 71,000 items, dating from 1884.