Marks & Spencer slashes sales targets as profits dip

 

Marks & Spencer boss Marc Bolland slashed his sales targets for the high street retailer today as he unveiled its first fall in profits in three years.

Despite efforts to pull in customers with celebrity-laden advertising campaigns, featuring the likes of actresses Joanna Lumley and Rosie Huntington-Whiteley and actor Ryan Reynolds, like-for-like sales of general merchandise fell 1.8% in the last year.

The decline was driven by a mixed performance in womenswear and home, with the latter impacted by the company's decision to exit the technology market.

Helped by a stronger performance in food, M&S saw underlying pre-tax profits drop 1% to £705.9 million in the year to March 31, while total sales grew 2% to £9.9 billion.

In November 2010, Mr Bolland set a target to grow revenues by between £1.5 billion and £2.5 billion over three years but as a result of the harsh economic climate has cut this target to between £1.1 billion and £1.7 billion.

In addition, Mr Bolland said the group now expected to invest £200 million less in its UK stores over the remaining two years of its strategy review.

M&S saw its profits smash through the £1 billion barrier for the first time in a decade in 2008 but the financial crisis hurt shoppers and heralded an era of fierce discounting on the high street.

The dip in profits was the first fall since 2009 and comes hand in hand with a flat dividend award for shareholders of 17p.

While the squeeze on household incomes in the UK, where M&S has 700 stores, has driven the weaker performance, some analysts also placed a failure to keep up with its rivals in clothing, such as Next and Primark, at the heart of its problems.

And while Mr Bolland hailed the group's "significant progress", the company declined to comment on current trading, which is likely to have been severely hit by the wet weather.

Nick Bubb, independent retail analyst, said the performance "relied on some formidable cost control" and added: "Going backwards in profits is never a good thing, whilst the flat dividend tells its own story."

The group launched 15 pilot stores in November last year to trial an easier shopping environment for customers with improved navigation.

Sales in the trial stores are 2.5% higher than the norm and the group has decided to roll out this format to the rest of its UK stores.

The group is launching the second phase of its new format design, which includes a new beauty, footwear and home range.

The beauty range is understood to include 14 own-brand product lines, including Limited and Autograph collection make-up, as well as 25 to 30 independent brands, of which many will be making their UK debut, such as Skyn Iceland and Dr Murad from the US.

In clothing, the group said its "Good" range was not "strong enough" and was hit by merchandising issues in the final quarter of the year.

But there was some strong growth in areas such as men's everyday essentials, which saw sales rise 11%, while kidswear delivered a record year.

Home sales fell 10% in the period as customers pulled back from purchasing big ticket furniture items and after the group pulled out of the tech market.

Total food sales were up 3.9% to £4.7 billion as M&S took on the heavy promotions at supermarkets with its Dine In For £10 and meal deal for £5 offers.

M&S said it would slowdown its store growth over the next two years due to the growth of its online market, growing space by 3% this year and 2.5% next year.

Multi-channel sales, which includes online, were ahead 18% with an average of 3.4 million weekly visitors to the website, up 11% on last year.

The company said its Summer 2012 advertising campaign, which features Take That's Gary Barlow, was "perfectly capturing the nation's celebratory mood".

Meanwhile, international sales were up 5.8% in the year, with India, China and Hong Kong driving growth, but held back by tough conditions in Ireland and Greece.

PA

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