Retailer Marks & Spencer Group Plc (MAKSY.PK,MAKSF.PK,MKS.L) Tuesday reported a lower annual profit, amid a tough clothing market. Further, the retailer said trading over the first seven weeks of the new financial year has been in line with its expectations.
Trading during the period was volatile, partly due to unseasonable weather conditions through both Spring/Summer and Autumn/Winter seasons, Marks & Spencer noted.
Marc Bolland, the firm's Chief Executive, said, "In a challenging market, M&S sales grew by 1.3%. Three of the four parts of the business made strong progress. We are working hard to get the General Merchandise performance back on track.''
Pre-tax profit for the year dropped to 564.3 million pounds ($860.2 million) from 658.0 million pounds.
Underlying profit before tax was 665.2 million pounds in the just-concluded year. The company incurred higher finance costs and recorded lower finance income in the year. Profit attributable to equityholders of the company fell to 466.7 million pounds from 513.1 million pounds. Earnings per share declined to 29.0 pence from 32.2 pence. Revenue edged up 0.9 percent to 10.03 billion pounds from 9.93 billion pounds in the prior year. Group sales were up 1.3 percent on a constant currency basis, driven by good performance in Food, International and Multi-channel businesses.
General Merchandise sales slid 2.4 percent and were down 4.1 percent on a like-for-like basis. The firm faced difficult trading conditions over the course of the year, amid a highly promotional clothing market and unseasonal weather.
Food sales advanced 3.9 percent and like-for-like sales were up 1.7 percent, due to focus on the heritage of quality, innovation and provenance.
In the U.K., revenue grew 0.9 percent to 8.95 billion pounds with a like-for-like decrease of 1 percent. Gross margin was up 10 basis points at 40.9 percent with General Merchandise gross margin up 45 basis points and Food gross margin was up 35 basis points.
Clothing market conditions remained challenging throughout the year in the region. The retailer said it protected margins with tactical offers on selected products.
In the Home business in the U.K., furniture sales rose 2 percent, driven by improved quality and faster delivery times on several key lines. In the Food business, the firm had its biggest ever Easter week as well as a record Christmas, outperforming the market in the two key trading weeks.
Multi-channel sales climbed 16.6 percent during the year, despite tough comparatives.
In the International business, revenue grew 0.9 percent to 1.075 billion pounds. Sales were up 4.5 percent on a constant currency basis, with good business in the Middle East, India and China .
The board recommended a final dividend of 10.8 pence per share, resulting in a full year dividend of 17 pence per share.
For 2013/14, the firm is targeting underlying profit improvement, but expects to incur around 30 million non-recurring dual running costs, as a result of the transition to the new web platform and the opening of the new EDC/NDC in Castle Donington.
Gross margin for the year is expected to grow by 30 basis points to 50 basis points with a similar range in both General Merchandise and Food.
Looking further ahead, from 2014/15 the company plans to move to a lower, more sustainable long-term investment level of around 550 million pounds that would allow it to continue to invest in the business on a consistent basis, avoiding the peaks and troughs of the past.
Owing to this transformation and the operational improvements, the firm expects to improve its General Merchandise margin over the next three years through tactical changes, sourcing and new systems, as well as early benefits of structural improvements.
As a result, Marks & Spencer expects a material improvement in free cash flow from 2014/15.
The stock is up 2.6 percent in early morning trade at 451.88 pence.
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