M&S Reports £201.2m Losses; Store Closures To Continue

Marks & Spencer has reported on 2020/2021 trading, advising of 'resilient financial performance in a year of disruption.'

Excerpts from the results publication follow: 

Note: 2020/21 is a 53-week year. The comparative period is 52 weeks to 28 March 2020. To aid understanding, we are showing the unaudited 52 weeks to 27 March 2021 with commentary and percentage changes on a 52-week basis unless otherwise stated.

• The Group delivered profit before tax and adjusting items of £41.6m and a statutory loss before tax of £201.2m in a year characterised by unprecedented lockdowns, resilient performance and disciplined management of costs. 
  
  
• We are grateful for total government support of £306.1m which has partly offset the effect of lost trade and enabled us to maintain employment.
  
  
• Food delivered strong underlying LFL growth of 6.9% after adjusting for the closure of hospitality and the adverse impact on franchise sales. Operating profit before adjusting items of £213.6m was a creditable achievement given the related effects on product mix. 

• Ocado Retail contributed a share of net income of £78.4m in an exceptional period for the business and following the successful switchover to M&S supply.
  
  
• Clothing & Home results reflect the heavy impact of lockdowns on stores, a substantial change in product mix and the challenges of clearing stock, partially offset by very strong growth online of 53.9%. As a result, net revenue declined 31.5% and there was an operating loss before adjusting items of £129.4m. Performance improved in the second half as online growth made greater inroads into the store sales decline. Clothing & Home online generated an operating profit margin of c.14%.
  
  
• International operating profit before adjusting items of £45.1m was resilient due to online growth which helped to mitigate the pandemic impacts on store sales in different regions. 
  
  
• The balance sheet has emerged stronger than expected. Lower discretionary costs and capex, managed stock flow and a focus on working capital resulted in net debt excluding lease liabilities down £278.6m to £1.11bn and a strong liquidity position. 
  
  
• This resilient performance is due to the extraordinary efforts of colleagues across the business, playing their part to feed the nation, increase our capacity for home delivery and work with our trusted suppliers to adapt to rapidly changing restrictions across the year. 

Forging a reshaped M&S through the Never the Same Again programme

• M&S Food growth supported by improved value perception and over 1,900 new lines
  
  
• M&S products now over 25% of Ocado average basket and c.50% capacity growth planned
  
  
• Clothing & Home business reshaped with shift to active and casual and more focused ranges 
  
  
• MS2 created to accelerate the shift to omni-channel with an online first approach
  
  
• Sparks relaunch hits 10m members with substantially improved data capabilities
  
  
• Accelerated opportunity to rotate the store estate into higher quality space

Accelerating rotation of the store estate

A continued headwind to M&S brand perception and performance is the legacy estate of full line stores (selling both Clothing & Home and Food) often in declining locations or centres, with inefficient space which is difficult to shop and costly to replenish. We have already closed or relocated 59 full line stores, 16 food stores and 8 outlets, but the effect of the pandemic means we can move faster. There has rarely been a better time to acquire new replacement stores on good terms and we are planning 17 new or expanded full line stores over the next two years, including a number of former Debenhams sites, with the pipeline continuing to grow. While long leases have historically constrained our ability to rotate, we plan to largely fund future closure costs through the disposal for redevelopment of freehold and long leasehold properties.

Framework for rotation: M&S had 254 full line stores at year end. While practically all Clothing & Home departments in these stores contribute positive cash, a number are in long term decline, struggle to cover their allocated central costs as a percentage of sales and cannot justify future investment. 

Our objective for the full line estate is to achieve a fully modernised core of c.180 stores. Our current best view of the future estate based on stress tests, regional modelling and current retail and efficiency requirements is as follows. 

• Around 100 stores in prime retail markets growing from the current base of c.80. In these markets we will invest in renewal, redevelopment, or replacement of existing stores.
• Around 80 stores in core markets, growing from the current base of c.65 stores through investments such as the relocation of high street units to retail parks. 
• In c.110 remaining locations we will rotate the estate. This will mean either relocating to a Food only store or another full line store as above or consolidating multiple stores into one. In around 30 locations which can no longer support a store we will close, recapturing trade in nearby stores or online.

Steve Rowe, CEO at Marks & Spencer: “In a year like no other we have delivered a resilient trading performance, thanks in no small part to the extraordinary efforts of our colleagues.

"In addition, by going further and faster in our transformation through the Never the Same Again programme, we moved beyond fixing the basics to forge a reshaped M&S. With the right team in place to accelerate change in the trading businesses and build a trajectory for future growth, we now have a clear line of sight on the path to make M&S special again. The transformation has moved to the next phase.”

Industry Comment:

Sandra Rowley at card payment solutions provider takepayments.com said: "M&S announcing the closure of all its stores is another blow for high streets up and down the UK, putting hundreds of jobs at risk and leading to even more vacant shops on high streets. As high street giants continue to fold under financial pressures caused by numerous lockdowns, it isn’t just the bigger businesses who are worried about the state of Britain’s once loved high street.

"Our research of small businesses found that the biggest concern for three in 10 small business owners is the decline of the high street this year. As the number of shops decline, it can only be expected that footfall will also follow. This will hugely affect independently owned retail businesses who rely heavily on the footfall that comes from the largest high street store brands like M&S and Debenhams. It’s important that business owners diversify their business offering as much as they can whether it be a click and collect service or start selling online to continue trading through tough times. Since the beginning of the pandemic began, there has been a shift in consumer spending as more people are choosing to shop online as well as more locally to support small businesses.”

Source : Marks & Spencer

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