Marks and Spencer (LON:MKS) announced a 10% drop in full-year profit to £523.2 million, which was slightly ahead of analysts forecast’s of £519 million. It has been three consecutive years that earnings have dropped at the retailer, but seeing as the group announced that profits would be lower over the weekend, the announcement wasn’t much of a surprise.
Fourth-quarter clothing and home sales on a like-for-like basis fell by 1.3%, and the food department registered a 1.5% decline, but Marks and Spencer said if it wasn’t for the timing of Easter, the clothing and home sales would have only declined by 0.9%, and the food revenue would have grown by 0.4%. The food division continues to be the bread winner for the company, and that is why is it seeking to ramp up its online exposure.
In February, Marks and Spencer declared it will pay £750 million to Ocado (LON:OCDO) for a 50% stake in a joint venture, and today M&S confirmed it plans to raise £601 million from a rights issue to help fund the move. The full-year dividend was by cut by 25.7%, and that was because the company want to conserve cash for the Ocado tie-up.
The group has been quick to implement its transformation plan, and it has shut nearly half of the 100 stores it selected for closure, and the retailer aims to have cost savings of at least £350 million by 2020/21. The group is ticking along, but if it wants to return to profit growth, it will need to drive costs lower, speed up its store closure rate, and get the Ocado deal off the ground as soon as possible.
Marks and Spencer had an underwhelming performance in the third-quarter. LFL food sales slipped by 2.1%, while clothing and home sales dropped by 2.4% .The clothing unit has been traditionally a drag on the group, while the food division has been the better performer, but the disappointing food numbers is a negative sign.
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