Marks & Spencer’s investors will have to wait a while longer to see the fruits of its recovery plan as analysts expect it to report ‘deeply underwhelming’ results next week.
The 134-year-old retail chain is set to reveal falling sales in both its food and clothing and home departments at its half-year results on Wednesday.
Profits are expected to fall by around 7 per cent to £203m, with additional costs likely to send underlying earnings as much as 14 per cent lower.
Turning the ship around: Marks & Spencer chief executive Steve Rowe
Analysts predict a 1.2 per cent drop in clothing and home sales, with food purchases likely to slump 2 per cent.
Chief executive Steve Rowe, 51, and chairman Archie Norman, 64, are enforcing a drastic five-year restructuring programme in a bid to revive the retailer’s fortunes.
They are shutting stores, closing warehouses, slashing prices and investing in technology as part of the overhaul. The transformation plans are expected to put thousands of jobs at risk.
Independent retail analyst Richard Hyman said: ‘The market hasn’t been helpful and M&S is still very much work in progress. I haven’t really seen any improvements in the offer over the past year or two.
‘It’s going to be a deeply underwhelming set of figures next week.’
Analysts at Shore Capital, M&S’s house broker, added: ‘With the group still working through step one, ‘restoring the basics’, in a multi-year transformation programme, it should not be a surprise that we anticipate a relatively subdued overall financial performance.’
So far 29 of M&S’s stores have been closed as part of its overhaul, with plans to close 100 by 2020.
At the retailer’s full-year results presentation, Norman made clear more stores could shut.
‘We have said it will be about 100 and we hope to get through most of that in the first two years, but I cannot tell you it is going to end there,’ he said.
M&S has more than 1,000 stores in the UK, 296 of which are food-only shops. Experts suggested the company may be forced to ‘bite the bullet’ and ramp up its store closure programme to boost cost savings.
M&S forked out nearly £200m in business rates, with its store in Covent Garden facing a rate rise of almost £500,000 in the year before it closed. Rowe said crippling rates made it ‘untenable’ to keep the shop open.
Analysts at Santander questioned whether the scale of M&S’s restructuring would be sufficient to revive the business and suggested the retailer should consider closing some of its Simply Food stores rather than just delaying openings as planned. Hyman added: ‘Like most retailers M&S has too many stores,’ adding that slimming its portfolio of shops down to the right size is a long process. ‘I wouldn’t be surprised if more closures were announced but I give them credit for having the courage to bite the bullet and go ahead with what they’ve announced so far.’
A 62 per cent plunge in full-year profits to £66.8m last year put further pressure on its share price as it was dragged down by £321.1m in costs linked to closures.
The shares are worth 302.4p compared with 500p five years ago. Graham Spooner, investment research analyst at The Share Centre, said: ‘Marks’ shares have largely traded sideways since full-year results in May.
‘The company said it expected profit margins at its clothing and home business to improve this year so the market will be looking out for that in the latest update.’