M&S full-year profit up, sees challenging markets

Margin will improve, but not at same rate: M&S CFO

Marks and Spencer reported rise in full-year profit on Wednesday and announced plans to overhaul its clothing and homeware business, a move it warned would have an adverse effect on short-term profits.

The group reported a a 3.5 percent rise in full-year underlying pretax profit to £684.1 million ($999.6 million) in the 52 weeks up to March 26 this year.

Group revenue rose to £10.4 billion in the same period, the company said. It added that market conditions continue to be challenging and that it was managing its business accordingly. Nevertheless, it announced a 3.9 percent rise increase of its dividend to 18.7 pence.

While it saw continued strong growth in its Food business and "outperformed in a competitive market," the company said in its earnings statement, its sales performance in its Clothing and Home business was "unsatisfactory."

Now its focus was on driving sales growth and "implementing actions to recover and grow Clothing and Home," it said.

"We are investing to re-establish our price position by sharpening prices and to enhance service by putting more employees into our stores," Chief Executive Steve Rowe said in a statement. "These actions, combined with the difficult trading conditions, will have an adverse effect on profit in the short term."

Chief Finance Officer Helen Weir, who has been put in charge of implementing a new corporate strategy for M&S, told CNBC that the key issue for the company was to understand its customers.

"For us and our Clothing and Home business it's about having great style, the design's important, the right prices and having the right availability and displaying things in store in the right way that people can find."

She said that the food business "continued to go from strength to strength as we really understand that customers value the innovation, the choice and the convenience."

Oli Scarff, Getty Images

Weir said part of the company's strategy was to invest in price. "So we are going to be having fewer promotions and taking that money and a bit more and re-investing that back into our actual price levels so customers should see lower prices when they come to us going forward."

The retailer is operating in a competitive and crowded industry in the U.K. and over the last couple of years it has seen its clothes sales struggle in comparison with its premium food brand. In 2015, its food business accounted for 57 percent of its turnover, whereas its general merchandise division accounted for the remaining 43 percent.

Weir said the company was re-evaluating the location of its stores (it has 852 U.K. stores) although she emphasized that all of its stores were currently profitable.

The earnings are the first to come since Steve Rowe took over from Marc Bolland in April as chief executive of the company. Rowe was previously the head of the company's non-food business.

Rowe's predecessor Bolland had spent millions of pounds on the redesign of products and stores in a bid to bring the 132-year old store back to its former glory but stepped down in January. Earlier in May, the company announced a new streamlined management structure.

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