City analysts react to Marks and Spencer's profit plunge as it counts the cost of restructuring

 
Rebecca Smith
M&S is keen to get back in fashion
M&S is keen to get back in fashion (Source: Getty)

Retail giant M&S had its full-year results out this morning, with pre-tax profits taking quite a tumble.

Chief executive Steve Rowe said the company remains on track and will continue its programme of "self-help in a tough trading environment".

Here's what analysts made of it all...

Read more: Marks & Spencer reports 63.5 per cent slump in pre-tax profits

Facing some big economic headwinds

Laith Khalaf, senior analyst, Hargreaves Lansdown, said: "The new M&S boss Steve Rowe is pulling out all the stops to turn performance around, but restructuring the business comes at a cost, and that’s why the company has posted a huge fall in profits. A late Easter also added to the retailer’s woes, as its latest festive sales will fall into next year’s profits."

"On top of its own singular problems, M&S is facing some big economic headwinds, in particular the fall in sterling, which is pushing up the price of food and clothes against a backdrop of squeezed consumer incomes," Khalaf added. "The high street is also in decline as more of us turn to our mobiles and tablets to do our shopping, which leaves M&S fighting an even steeper uphill battle.

"All of this paints a pretty gloomy picture for the high street retailers for the foreseeable future. The new strategy at Marks and Spencer is much needed, and may eventually pay off, but it’s not going to be an easy ride."

Behind the scenes improvements could mean investors give it the benefit of the doubt

"M&S had seen a fairly solid market-recovery in 2017, lifted to 12 month highs by a surprisingly strong Christmas, hopes of an online food delivery trial in autumn, and the appointment of former ASDA-whizz Archie Norman as chairman," said Connor Campbell, analyst at Spreadex.

"Today’s full year figures threw a potential road-block in the way of that comeback. Pre-tax profit plunged 63.5 per cent thanks to restructuring costs – the underlying figure fell by a better than expected 10.4 per cent – while like-for-like clothing sales were down 5.9 per cent in Q4 and 3.4 per cent for the year, immediately reversing the third quarter’s Christmas growth.

However, after a brief dip into the red M&S has actually climbed back towards £3.90, investors willing to give the company the benefit of the doubt following the behind the scenes improvements made in the last couple of months.

Read more: Pressures mount for M&S CEO Rowe

New "dream team" could shake up stale clothing sales

Anusha Couttigane, senior analyst at Kantar Retail, said: "Once again, Marks and Spencer’s has posted polarised full year results between its thriving food business and more challenging general merchandise offer.

"It is clear that the retailer’s management continues to face challenges in its core clothing category, despite making significant investments to revamp it. Marks and Spencer’s move towards seasonless ranges and a renewed emphasis on high quality wardrobe staples are still taking time to recruit long-lapsed customers."

She added:

A new team could also make a real difference to Marks and Spencer’s performance in clothing. Having poached Halfords CEO Jill McDonald as its new MD of clothing, home & beauty, the company has also announced that current lingerie & beauty director Jo Jenkins will move into the new role of clothing & beauty Director under McDonald.

"Given the fresh thinking McDonald could bring to the company and the roaring success of Jenkins’ lingerie and beauty strategies to date, this could be the beginnings of a dream team that turns around Marks and Spencer’s ailing clothes business."

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