Marks and Spencer profits fall

The high street stalwart is feeling the pinch of economic hardship, with profits falling for the first time in three years.

by Michael Northcott
Last Updated: 19 Aug 2013

Despite the retail chain’s positive performance in recent years, Marks and Spencer, the barometer of high street retail, has suffered its first dip in profits since 2009, down to £706m from last year’s £714m. Quick to respond, chief executive Marc Bolland stressed in interviews this morning that if exceptional market behaviour (such as Greece’s rapidly deteriorating situation) are taken into account, then actually there was an underlying rise in profits. We've seen quite a few people talking about underlying profits this year...

Critics would argue that a fall in profits is simply that, but Bolland’s analysis stands some analysis: group sales were up 2% to £9.9bn, and even the like-for-likes remain in growth mode. In the UK they rose 0.3% and international sales rose 5.8%.  But overall profits fell meaning M&S has been eating into its margins.

Bolland insists that the results constitute a good performance given the ‘challenging economic environment’, and that the chain has managed to maintain its market share. But we can’t help thinking this is slightly misleading: its clothes division has actually seen sales fall (by 1.8%) as clothing rivals Next and Primark nab the more cash-strapped end of its customer spectrum. 

The drop in profits is a far cry from the heady days when Marks and Spencer was the UK’s most profitable publicly listed retailer, and the first to make more than a £1bn profit in the UK retail space. But whilst revenues are now approaching £10bn, profits have been squeezed and Sparks is still dwarfed by behemoths such as Tesco (£72bn), Sainsbury’s (£23bn) and even Morrisons (£17bn).

Looking ahead, Marks and Sparks has plans to refurbish every one of its UK premises, and has already implemented new designs in around 80 stores making it easier for customers to find their way around. Bolland claims that sales in these pilot stores have seen sales increase 2.5%. 

Whatever the economic woes the chain is up against however, investors will probably take these results on the chin, especially given the generally gloomy state of the British high street and the fact that even major league competitors like Tesco’s are not finding it easy either…

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