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Marks & Spencer blames weak economy for lower sales targets
Marks & Spencer blames weak economy for lower sales targets
(about 11 hours later)
Marks & Spencer boss Marc Bolland has dramatically scaled back ambitious sales growth and UK store opening plans after annual profits declined at the UK retail giant.
Marks & Spencer boss Marc Bolland has been forced to slash sales growth targets and store opening plans after tough high street conditions hit profits.
When Bolland joined the retailer two years ago he set out the details of a three year plan that would boost sales by up to £2.5bn by 2014. Today he scaled back the target to up to £1.7bn blaming the "deterioration in the economic environment since we set out our plan".
Bolland had set out a three-year plan to boost UK group sales by up to £2.5bn but on Tuesday, just one year into the programme, he slashed the top target by 30%, blaming the economic malaise. "Realism has prevailed," he said. "People don't like targets you can't reach."
The revised targets came as M&S reported a 1% drop in underlying profits to £705.9m for the year to 31 March which, although slightly ahead of analysts predictions of £694m, marked the retailer's first decline in three years. M&S made profits of £714.3m in 2011 and independent analyst Nick Bubb said the "small beat" was down to "some fancy footwork on the interest charge". Bolland's plan required the retailer to add £1bn of sales a year but turnover increased by less than £200m to £9.9bn during the year.
Investors had already anticipated the revision, he said, adding: "The UK looks completely different than it did 18 months ago. The economy is not allowing us to grow much faster than we are doing today."
Other parts of Bolland's grand plan are still on track he said, with a major revamp of its UK chain delivering results. The cost of that project has been scaled back from £600m to £500m and Bolland said sales were 2.5% higher in new look stores. "Whilst the economic environment has deteriorated since we first set out our strategic plans, we have made significant progress," he said. "Our UK pilot stores are delivering good results." Plans to expand its internet and international divisions were also "well on track" he said, adding: "By the end of this year we will be transacting from 10 websites worldwide and opening around 100 international stores per year."
The revised targets came as M&S reported a 1% drop in underlying profits to £705.9m for the year to 31 March. Although slightly ahead of analysts' predictions of £694m, it marked the retailer's first decline in three years. Sales increased by £194m to £9.9bn; the original plan required sales to ratchet up by around £800m a year.
Despite the sales pick up in refurbished stores Bolland also said it had "reviewed" plans to expand its UK selling space at 3% a year, growth that have meant that 95% of the population would be within 30 minutes drive of a full line M&S store by 2015. As a result of the curtailment M&S will be investing £200m less than originally envisaged in UK stores over the course of remaining two years of the plan. The retailer expects space growth of around 3% this year but said that would fall back to 2.5% the following year, with a further drop expected thereafter.
Gloomy analysts had expected that Bolland would make a bigger cut to his growth targets, and shares closed up nearly 2% at 344.3p. "The initial targets had always been regarded as ambitious by analysts and had not been factored into forecasts," said Charles Stanley's Sam Hart.
Like-for-like sales of clothing and homewares were down 1.8% despite the retailer running a series of celebrity-laden advertising campaigns, featuring the likes of Rosie Huntington-Whiteley and actor Ryan Reynolds. The decline was driven by a mixed performance in womenswear and homewares, with the latter impacted by the company's decision to exit the technology market and a reticence by hard up consumers to commit to big ticket purchases like furniture. Its food business fared better with like-for-like sales up 2.1%.
Bolland would not be drawn on whether he would decline his bonus for the year: store employees are receiving a reduced bonus this year – given the need to reset growth targets. His pay was a matter for the remuneration committee, he said, and would be revealed in its annual report next month. His bonus is already in jeopardy as 60% of the payout, worth up to twice his £975,000 salary, is based on the retailer's pre-tax profit performance. Bolland could still take home around £6m, however, thanks to share awards that were part of a bumper joining package, originally worth £15m, put together to lure him from Morrisons.
"M&S has much more work to undertake if it is to accelerate growth, and nowhere is this truer than in clothing. While M&S has made some good progress on home and food we feel it still lacks a clear sense of direction on the clothing front, especially in womenswear," analysts at Columino said. Last month Bolland admitted buying blunders at the retailer had resulted in major shortages of bestselling lines such as winter coats and knitwear. The stock shortages meant like-for-like clothing and homewares sales at M&S fell 2.8% in the fourth quarter, missing City forecasts. At that time he announced plans to cut £100m from its three-year stores refurbishment programme to £500m.
It has recently launched new initiatives to attract customers to its clothing and food aisles. The actress Joanna Lumley is fronting "shwopping", a tie-up with Oxfam that invites shoppers to hand over an old or unwanted one piece of clothing when they buy something new. It has also introduced a new "no frills" grocery brand called Simply Food to appeal to budget-conscious shoppers and help change the perception that its food halls are a destination for special occasions or when you are in the mood to treat yourself. M&S shares rose almost 1.5% in early trading, up 4.8p at 343p.
