Marks & Spencer has posted a 2.1% decrease in group revenue in the first half of its financial year, with its food business seeing growth of 0.9%, and its Clothing & Home arm posting a 5.5% decline.
Commenting on its performance, chief executive Steve Rowe said that the group's transformation plan is "now running at a pace and scale not seen before at Marks & Spencer. For the first time we are beginning to see the potential from the far reaching changes we are making".
Here's how leading retail analysts viewed its performance:
Russ Mould, AJ Bell
“The disappointments are piling up for Marks & Spencer like unsold sweaters and cardigans on its shelves. Fresh from the surprise departure of its finance chief and its relegation from the FTSE 100 for the first time in September, the company has served up a mixed set of first half results.
“The company has already admitted it is well behind with its turnaround of this part of the business, reflected in the decision to fire its head Jill McDonald in July. CEO Steve Rowe has rolled up his sleeves to take more direct control with the apparent attitude that if you need a job doing properly you should do it yourself.
“Unlike more successful retailers like Next, online sales are not coming to the rescue for Marks and are growing at a very modest rate. This undermines the credibility of its ‘digital first’ strategy and plan to close a large number of physical stores.
“The cut to the dividend had been widely trailed but may still frustrate shareholders, with the wisdom of this decision set to be tested by the success or failure of its capital-intensive online food delivery venture with Ocado next year.
“If food becomes increasingly successful, there may be pressure for the company to separate the two parts of the business.”
Richard Lim, Retail Economics
“Continued tough trading over the last few months saw profits plummet across the clothing and home business. Product selection remains a key issue for the retailer with a confused proposition across some parts of the business. Put simply, their core proposition in non-food has failed to resonate with their core customer base for seasons.
"While progress continues to be made in their transformational strategies, the race is on to fix its broken business model to remain relevant for today's consumers. The sector is evolving at an unprecedented pace and some of the deep-rooted challenges in the business are proving extremely challenging to resolve."
Barclays European Food Retail Equity Research
"Against a set of reduced expectations, this seems to us like a reasonable outcome for M&S. As hoped, Food seems to be on an improving trend. Clothing & Home clearly remains problematic, but the gross margin guidance cut reflects pain taken in 1H rather than expected in 2H.
"There seems to be good progress on cost, which means the impact of weak Clothing sales is less than one might have expected. Moreover, there are some reasons for optimism about recent sales trends in this division."
Steve Miley, www.asktraders.com
"In its first trading update since its embarrassing demotion from the FTSE 100 in September, Mark & Spencer’s results highlighted the continued struggles that the retailer is facing in its latest turnaround attempt.
"The food sector continues to be the star performer in the business, impressing investors with like-for-like sales. However, these failed to make up for the soft like for like clothes sales, the clothes sector was once again the weakest link in what has almost become a tradition. Marks is failing to get a grip on its unravelling clothes business which has been its Achilles heel now for far too long.
"Whilst the results left a lot to be desired, investors are more confident about the future of Marks and Spencer as cost savings kick in from store closures and as investors look forward to M&S products being available on Ocado as from next September. The stock jumped 5% in early trade reflecting investors optimism for the company going forward."
Thomas Brereton, GlobalData
"M&S’s half-year results continue to highlight the disparity of its two divisions, with a 1.2% increase in food sales (up £32.6 million to £2,845.8 million) more than offset by an alarming 7.8% fall in its clothing and home (C&H) sales (down £133 million to £1,569.5 million).
"The poor performance in C&H – largely blamed upon availability and supply chain issues – has also significantly reduced pre-tax profit, falling to £176.5 million for the six months. However, despite the swarm of negative numbers across the report, investors have picked out the silver lining of a food division showing early signs of rejuvenation, and its share price rose c.5% in early morning trading.
"But a pleasant performance in food is not enough to mask the woes in its C&H arm. And while the recent cull of underperforming stores goes some way in explaining the large drop in sales, the 5.5% fall in C&H l-f-ls indicates a much wider consumer perception issue.
"While M&S is aware of this issue (with its investor presentation in October stating that the brand is perceived as 'too old', 'old fashioned' and “boring”), changing this firmly established brand reputation is a monumental challenge.
"So while the proposed category-led reviews across non-food lines are the right move for M&S, doing this at the pace required to offset the overall challenges facing the market seems almost inconceivable. And as this underperformance continues to weigh on the group as a whole, speculation that M&S may spin off its non-food UK business will only increase.''
© 2019 European Supermarket Magazine – your source for the latest retail news. Article by Stephen Wynne-Jones. Click subscribe to sign up to ESM: The European Supermarket Magazine.
