Oh dear. It hasn’t been a very happy Christmas for Marks & Spencer: the retailer said today that it plans to cut about 1,230 jobs after recording a 7.1% drop in like-for-like UK sales in the 13 weeks to December 27. About 450 of these jobs will come from head office, while the remaining 780 will come from the closure of 25 Simply Food outlets and two of its main stores. With sales and margins both down, executive chairman Sir Stuart Rose has decided to give the retailer a severe haircut going into 2009 – although with the company still expected to end the year £600m in the black, we shouldn’t get too carried away…
Nonetheless, last quarter’s sales figures were pretty ropey. General merchandise sales (mostly clothes) were down by nearly 9% on a like-for-like basis, while food sales slumped by 5%. Even if you factor in the impact of new retail space, total sales in the UK were down 3.4%, despite the two 20%-off sale days M&S held in the run-up to Christmas to try and woo customers. That’s a worrying sign for one of the high street’s biggest names. Worse still, these sales also hammered profits: FD Ian Dyson is now expecting margins to shrink by 1.75% this year (although Rose insisted this wasn’t a profit warning).
Cost-cutting will now be the order of the day at M&S. As well as closing under-performing stores and trimming back head office (with the loss of all those jobs, much to the fury of the unions), Rose is slashing capital spending from £700m last year to £400m this year, and is also fiddling with the pension scheme, limiting increases in pensionable pay to 1% per year and changing the rules on early retirement – an effort to stop pension contributions eating up all his profits. Severe measures, but they seem to have been well-received by the City today.
And there was the odd nugget of good news in today’s announcement. International sales were up by nearly 27%, meaning that overall group sales fell just 1.2%, while its internet operation is also doing well. Rather surprisingly, M&S also reckons it’s holding market share in clothing, with lingerie and kids’ stuff doing particularly well. But most of all, it could have been worse – some doom-mongers were predicting double-digit sales drops, whereas the end result was just about in line with forecasts (albeit the bottom end of forecasts). Hence why the M&S share price is actually up slightly this morning.
Small mercies, perhaps, but at least Rose has done a decent job of setting (low) expectations. What’s more, M&S is still likely to make profits of £600m this year: that’ll be a big drop from last year’s £1bn, but hardly terminal. Although this won't be much consolation to those 1,230 staff...
In today's bulletin:
M&S cuts jobs and stores after sales slump
Domino's and Greggs line up higher profits
Videogames going to the next level
Power of prayer is not redundant
LAST CHANCE: MT's 2008 in 20 Questions