May 24, 2017 / 6:42 AM / 3 months ago

UPDATE 1-M&S sales, profit fall after short-lived improvement

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LONDON, May 24 (Reuters) - Britain's Marks & Spencer reported a 10 percent decline in annual profit and said clothing and homeware sales fell in its latest quarter, dampening the euphoria of the previous three months when it recorded a first increase in nearly two years.

The firm also said on Wednesday that the trading environment remained tough.

M&S, one of the best known names in British retail, made a pretax profit before one off items of 613.8 million pounds ($796 million) in the year to April 1. That was ahead of analysts' average forecast of 593 million pounds but down from 690 million pounds made in 2015-16. The outcome reflects lower clothing and homeware sales and higher costs.

Revenue fell 2.2 percent to 10.62 billion pounds. However, the dividend was maintained at 18.7 pence.

Steve Rowe, a 27-year company veteran, became CEO a year ago, taking on the tough task of reviving a British institution that has fallen out of fashion over the last decade.

His priority has been trying to turn around M&S's underperforming clothing business by driving improvements in the quality, fit and availability of its ranges, while lowering prices and reducing the amount of garments sold through promotions.

Rowe is also working through major programmes to switch UK shopfloor space away from clothing and towards food and reduce the group's international high street exposure, closing stores in 10 markets.

He said last year his plans would dent short-term profit.

"We achieved a huge amount in the year and whilst there is still much to do, I am pleased with our progress and we remain on track," he said on Wednesday.

M&S's fourth quarter sales were significantly dented by a later Easter falling outside the quarter and by the key days of the busy post Christmas sale coming in the third, rather than the fourth, quarter.

Clothing and homeware like-for-like sales fell 5.9 percent in the period, worse than analysts' average forecast of a 3.3 percent decline. They had increased 2.3 percent in the previous quarter.

Like-for-like food sales fell 2.1 percent versus an analysts' consensus of down 0.6 percent.

For its 2017-18 year M&S said it was targeting a clothing and homeware gross margin in a range of up 25 to down 25 basis points, with the firm seeking to mitigate the impact of a weaker pound with better sourcing and a further reduction in discounting.

Shares in M&S, which have increased 20 percent in the last three months, closed Tuesday at 387.7 pence, valuing the business at 6.32 billion pounds. ($1 = 0.7711 pounds) (Reporting by James Davey; editing by Kate Holton)

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