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M&S annual profit falls as food margins are squeezed
Marks & Spencer's annual profit fell 5.4% as margins at the retailer's food business were squeezed by the rising cost of ingredients.
Pre-tax profit before exceptional items dropped to £580.9m from £613.8m in the year to the end of March.
The result outstripped analysts' consensus forecast of £573m. Statutory pre-tax profit fell 62% to £66.8m and excluded £514.1m of so-called adjusting items including the £321.1m cost of scrapping stores.
M&S announced 100 branch closures a day earlier as part of chief executive Steve Rowe's effort to overhaul the business. Rowe is cutting costs, investing in online sales and revamping ranges against a backdrop of intense competition, squeezed household incomes and shoppers moving online.
Rowe said: "The first phase of our transformation plan, restoring the basics, is now well under way and the actions taken have increased the velocity of change running through our business. These changes come with short term costs which are reflected in today's results.
"The team is now tackling transforming our culture to make M&S a faster, lower cost, more commercial, more digital business. This is vital as we start to leverage the strength of the M&S brand and values across a family of businesses to deliver sustainable, profitable growth in three to five years."
Revenue at M&S's food business rose 3.9% to £5.87bn as the company opened more stores but sales at established outlets fell 0.3%. Gross margin at the business narrowed by 140 basis points as M&S absorbed the rising cost of ingredients and sought to compete with cheaper rivals.
At M&S's clothing business, which has failed to keep up with trends for many years, revenue fell 1.4% to £3.74bn. Like-for-like revenue dropped 1.9% as M&S scrapped two clearance sales but full-price sales were stable.
Rowe's plan is the latest in a series of efforts to update the 134-year-old retailer, which has struggled to compete with the rise of cheap fast fashion chains and low-cost food retailers.
Rowe, an M&S veteran who became CEO two years ago, set out his plans in November. Announcing the annual results, he said events in the retail market, where household names are struggling or closing, had convinced him M&S needed to speed up its efforts.
"Changes in the high street and migration online mean that we have to be decisive with our store estate, renewing and closing stores more quickly. Our supply chains in both clothing and home and in food require significant upgrades, so that we can be faster to market, reduce high stock levels in clothing, and improve availability and waste in food."