Marks & Spencer profits grow but fashion remains challenging

• Full-year underlying pre-tax profits up 6.1% to £661.2m
• Group sales in the year to end of March flat at £10.3bn
• GM sales – including fashion – slip 2.5%
• Group to return £150m to shareholders this year in buyback scheme

The retailer’s statutory pre-tax profits were up 3.4% to £600m, while underlying profit before tax rose by 6.1% to £661.2m.

In the 52 weeks to the end of March, group sales were up 0.4% to £10.3bn.

Food and fashion

M&S’s food sales were up 3.4% and rose 0.6% on a like-for-like basis. But general merchandise sales – which includes fashion – were down 2.5% with like-for-like sales down 3.1%, despite returning to growth in its fourth quarter.

The retailer puts this disappointing result down to the third warmest autumn on record, which affected the entire retail sector.

“And we were disproportionately affected due to our high market shares in winter categories such as knitwear and coats,” the company said.

UK gross margin was up 75bps to 41.4%, helped by a “strong improvement” in general merchandise, the firm said.

Looking ahead Marks & Spencer said it would continue to see significant gross margin improvement in general merchandise through direct sourcing and improved trading, but only modest sales growth.

On its food offering, M&S said it is increasing the number of new Simply Food stores it plans to open, from 200 to 250 by March 2017.

Online

Online sales were down 2% over the year after replatforming from Amazon, which proved a “bigger change for customers than anticipated.”

The retailer said it also faced disruption at its online centre over the peak Christmas period, but has since made improvements to the site and sales from M&S.com grew over the fourth quarter.

The retailer also reported a turbulent year for its international business, sales were down 2.1% on a constant currency basis.

Marc Bolland, M&S chief executive, said: “We made good progress in three of our four key priorities for the year. In food, we had an outstanding year in a difficult market. In GM, we significantly increased the gross margin, and, while sales performance was below our expectations, we returned to growth in the fourth quarter.

“We continued to control costs and capital expenditure tightly, resulting in significantly improved free cash flow,” he added. “We are transforming M&S into a stronger, more agile business – putting the right infrastructure, capabilities and talent in place to drive our strategic priorities.”

Meanwhile, chairman Robert Swannell added: “We are a more capable business following a sustained period of investment in our infrastructure and in our people. Our focus continues to be on delivery of the strategy and improvement in shareholder returns.

“In line with our policy, the Board is recommending a final dividend of 11.6p per share, resulting in a full-year dividend of 18p, 5.9% up on last year. In the context of continuing increased free cash flow in the business we are also pleased to announce the start of an ongoing programme of enhanced returns for shareholders with a share buyback programme of £150m in the current year.”

Shares in Marks & Spencer were this morning trading down 0.97% at 579p.