Same-store sales at Marks & Spencer’s food and clothing divisions both fell as it told investors it expects “little improvement” in the months ahead.
M&S revenue declined 3.1 per cent year on year to £4.96bn in the six months to the end of September.
Clothing and home division revenue dropped 2.7 per cent due to store closures, with like-for-like sales declining by 1.1 per cent.
Meanwhile, like-for-like food sales fell 2.9 per cent.
Profit before tax grew two per cent to £223.5m, but store closure costs of £46.5m contributed to £96.8m in costs that weighed on the retailer’s bottom line.
The supermarket and fashion chain boosted cash flow by 37.5 per cent to £300.4m, while it slashed net debt by 12.3 per cent to £1.78bn.
Basic adjusted earnings per share fell from 10.7p this time last year to 10.6p, while the ordinary dividend per share was 6.8p.
Why it’s interesting
Hargreaves Lansdown senior analyst Laith Khalaf said the results made for “grim reading”, with M&S seen as a bellwether of the high street’s health.
The retailer’s high-end food business is facing new competition from the likes of budget supermarkets Aldi and Lidl, as well as online options like Just Eat and Deliveroo.
“These providers present a particular threat to M&S seeing as many of its customers are buying a quick meal for that night, rather than a full weekly shop,” Khalaf said.
“Only a short time ago the food business looked to be the jewel in the crown of the M&S empire, though today it’s looking pretty jaded.”
“However, expectations are already low, and while there are few signs of relief in its latest numbers, the broad direction of travel at M&S won’t come as a shock to anyone,” he added.
M&S blamed an early Easter for lower food sales, as well as measures it is taking like reducing prices of 100 everyday products, with more to come, and eliminating “complex and confusing” promotions.
The supermarket is also strengthening its supply chain and rethinking its food categories, saying its so-called dine-in meal deal diluted profits and proved confusing.
M&S blamed an ageing customer base for poor performance in its clothing space, while like-for-like sales suffered as it closed 21 stores and three outlets.
The company plans to update its wardrobe with more “stylish and contemporary” fashion lines and essential clothing items to win back families going clothes shopping.
Meanwhile, M&S wrote off more technology costs as it struggles to escape its legacy IT systems and migrate data over to its new partner, TCS.
The business also outlined a cost savings target of £350m by 2021/21 from its store sell-off and management restructure, as well as improving food and clothing sales and cutting down on procurement costs.
Shares fell almost four per cent in early trading.
Khalaf said: “M&S is in the midst of the turnaround plan, and so business performance can be expected to be rocky for the time being. Though at some point in the not too distant future, investors will want to see some light at the end of the tunnel.”
What Marks and Spencer said
Chief executive Steve Rowe said:
In May I set out in our ‘Facing the Facts’ presentation, the challenges we face and the steps we are taking in this the first phase of our transformation programme. Against the background of profound structural change in our industry, we are leaving no stone unturned and reshaping our business, its organisation and culture.
This phase is about rebuilding the foundations of the future M&S and we are judging progress as much by the pace of change as the trading outcomes. Already, we have reorganised into a family of strong businesses in the biggest change to our structure for decades. We now have a largely new, very determined and energetic management team in place. M&S is becoming a faster, more commercial and more digital business.
"We are on track to restructure our store portfolio with over 100 full-line closures and expect to see newly remodelled stores open next year. We are fixing the basics of our online channel and there are very early signs of improvement. Every aspect of our ranges, how we trade, our supply chain and marketing is undergoing scrutiny and change.