Reporting its annual results today, Marks & Spencer said it racked up full-year profits of £1bn for the first time in a decade last year (as widely trailed in the Sunday papers), with total sales up 5.1% to £9bn. A 23% increase in the dividend also gave its share price a welcome boost this morning. ‘Despite tougher economic conditions in the second half, M&S had a good year’, said boss Sir Stuart Rose this morning.
However, the overall picture wasn’t quite so rosy. UK like-for-like sales fell by 0.5% over the year (including a 1.7% drop in the fourth quarter, with food and clothing sales both down), while gross margins are down and operating costs are set to jump by a slightly scary 7%. It took new retail space and a rise in international sales to boost overall revenues, while it only managed to hit the milestone £1bn profit mark because of lower interest payments (it must be one of the few people to be paying less interest than last year) and a drop in the bonus pool.
Speaking of which, the news was indeed pretty grim for the 70,000-odd M&S staff, who woke up on Sunday to learn that they’d be getting a much smaller bonus than last year. After paying out around £90m last time round, a failure to hit performance targets meant that the retailer’s top brass will get zilch this year – while the store staff will share a smaller pot of £12.8m (down from £26m last year) in recognition of ‘their hard work in delivering great service’. Perhaps they worked harder the year before?
And the bad news is likely to keep coming this year. Rose admitted trading had been ‘mixed’ so far; after a ‘difficult’ April, May has apparently shown ‘a marked improvement’ – although he says they remain ‘cautious about consumer sentiment’. Most analysts reckon he’s got no chance of repeating the £1bn trick this year, with profits expected to drop by up to 20%.
So what does he plan to do about it? Well, the main tactic appears to be to try and steer clear of the ailing UK high street – both by expanding the online business and by expanding internationally. It’s currently adding more retail space in Europe and India, with China soon to follow – and with international sales up by 16.8% to £713m, the plan seems to be working. Rose reckons M&S will spend about £900m on expansion this year, so he’s not reining in his ambition just yet. It's also going to start selling 'must-have' brands for the first time, to stop brand-loyal shoppers having to go to Tesco to feed their Marmite and Heinz addictions. And it may even stop spending so much money on adverts (Twiggy and Myleene won't be pleased).
Let’s hope all this pays off – or the grumblings about Rose's elevation to executive chairman might start increasing in volume...