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More changes as profits slip

M&S gives ‘voice’ to stores and raises £601m for JV

M&S label

Marks & Spencer: changes ahead


Marks & Spencer has unveiled a raft of changes to how it manages its stores and said it will raise £601.3 million to finance its online venture with Ocado.

After announcing a 9.9% fall in profits, a rights issue and a 25.7% cut in its dividend, the retailer said there would be another shake-up in its under-performing clothing business.

In the year to the end of March UK Food revenue was down 0.6%, with like-for-like revenue down 2.3% (1.5% adjusted for Easter) with an improving underlying trend in Q4.  UK Clothing & Home revenue was down 3.6%, impacted by store closures, with like-for-like revenue down 1.6%.

The company admitted mistakes in its clothing offer. “Our range remained too wide in FY 18/19 with the volume of options in our range splintering our buying scale and making our shops challenging to navigate,” it said in a statement.

“Our size ratios have been historically misaligned with the profile of the contemporary family age customer we aim to appeal to. 

“However, where we have made progress in pruning options and introducing slimmer fits and more mid sizes, the customer response has been very strong.”

The company has also unveiled plans to devolve more power to local store managers.

Holly Willoughby

Holly Willoughby became the new face of M&S


“We are taking steps to bring back the voice of the stores,” it said.  “Over the years a business that was famously product and store led has developed a ‘Head Office knows best’ mentality, remote from the customer. 

“In our new organisation we are ensuring that the role of the store is central to all our activity, whether that be active engagement in range decisions for the first time or store managers leading the trading feedback calls which are attended by all commercial executives. 

“Store managers will now have visibility of their own P&Ls, and Food managers are given the granular information to act on their own waste. M&S has an extraordinary workforce of loyal colleagues and our aim is to be the most involving workplace in large scale UK retail.”

On technology, it said: “M&S in store technology and systems have been historically underinvested and require improvement.

“M&S has the potential to have one of the strongest and most valuable customer data ‘lakes’ in the UK with the combination of Sparks, Online, the M&S credit card and Ocado.  However, our customer data bases are currently disconnected and ineffective.  Our Sparks loyalty programme needs substantial improvement and in the next year it will be repositioned, revamped and relaunched.” 

Steve Rowe, Marks & Spencer CEO, said: “We are deep into the first phase of our transformation programme and continue to make good progress restoring the basics and fixing many of the legacy issues we face.  As I have said, at this stage we are judging ourselves as much by the pace of change as by the trading outcomes and change will accelerate in the year ahead.

“Whilst there are green shoots, we have not been consistent in our delivery in a number of areas of the business.  M&S is changing faster than at any time in my career – substantial changes across the business to our processes, ranges and operations and this has constrained this year’s performance, particularly in Clothing & Home.  However, we remain on track with our transformation and are now well on the road to making M&S special again.” 

Profit before tax & adjusting items fell 9.9% from £580.9 million to £523.2m.

The online joint venture with Ocado will be financed by a 1 for 5 rights issue priced at 185 pence per share and by reducing the proposed final dividend which is cut from 18.7p to 13.9p.

The rights issue price represents a discount of approximately 31.8%. to the closing middle-market price of 271.2 pence.

Market reaction

Arlene Ewing, investment manager at Brewin Dolphin, said: “These results underline that M&S is going through a significant overhaul. The major news is the £601.3 million rights issue for the Ocado joint venture and the cut to the dividend – both moves will likely mean short-term pain for shareholders.

“Of course, the hope is that a much stronger business will emerge on the other side – but we will only know whether it has worked years down the line. Aside from those two major developments, it’s a relatively negative set of figures: clothing has continued to decline, as has the food business which is even more worrying. Nevertheless, management realises that drastic action is needed to stop the rot and is clearly ready to step up to that challenge.”

Ed Monk associate director from Fidelity Personal Investing’s share dealing service said: “Results from M&S come too early to reflect any affect from its recent deal with Ocado, but they do show why that joint venture is so important. Falling revenue and profit before tax show the scale of the challenge in turning Marks & Sparks around. Shareholders’ patience will also be tested by a cut to the dividend and a rights issue.”


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