Marks & Spencer reports slump in profit hurt by clothing sales and cost of new food stores

Since announcing the results of a sweeping strategist review last year, M&S has opened 68 new food stores

Net debt stood at £1.9bn for the year, down from £2.1bn in 2016 (Reuters)

High street stalwart Marks & Spencer has reported a more than 60 per cent fall in pre-tax profit in the year to the end of March, hurt by a decline in clothing sales and higher costs from opening new food stores.

Pre-tax profit came in at £176.4m for the year, while sales were broadly steady at £10.6bn. Food revenue was up 4.2 per cent.

Fourth-quarter profit was particularly dented by Easter falling later, and therefore outside of the reporting period. Important post-Christmas sales days, meanwhile, fell in the third quarter.

"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," said Julie Palmer, a partner at consultancy Begbies Traynor.

"With more consumers choosing to purchase both fashion and food online, alongside increased competition in its clothing division from value retailers like 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,” she added.

M&S said that like-for-like sales in its clothing and homeware division fell 5.9 per cent in the fourth quarter, missing Reuters analysts' average forecast of a 3.3 per cent decline. John Ibbotson, director of the retail consultancy Retail Vision, described the company as a “dysfunctional dichotomy – premium food with dowdy clothing”.

But Steve Rowe, who took over as chief executive a year ago, proved optimistic.

“Last year we outlined a comprehensive plan to build strong foundations for the future. We said we would recover and grow clothing and home, continue with our plans for food growth, remove costs and simplify the business,” he said.

“We achieved a huge amount in the year and whilst there is still much to do, I am pleased with our progress and we remain on track," he added.

He said that, as anticipated, the planned restructuring of the group had come with a cost that had impacted profits, “but the business is still strongly cash generative and we reduced our net debt”.

Net debt stood at £1.9bn for the year, down from £2.1bn in 2016.

Since announcing the results of a sweeping strategist review last year, M&S has opened 68 new food stores and completed consultation on shop closures in 10 loss-making international markets.

Looking ahead, the group said that the outlook for the overall clothing market remains uncertain and that improvements to style and fit would remain core to its strategy. It also said that it would continue to reduce the number of promotions and clearance sales and maintain its strong focus on food.