Marks & Spencer reports first rise in annual profits in four years

Marks & Spencer: profits fall

Marks & Spencer: tale of two cities?

Marks & Spencer has reported a 6.1% rise in pre-tax profits to £661.2m for the year to 28 March 2015 with a strong performance in food, despite a deflationary environment.

Sales of general merchandise, including clothing, were below expectations but sales of womenswear grew in the fourth quarter.

Chief executive Marc Bolland said he was pleased with the results and they were achieved by numerous parts of the business.

“Food sales are up strongly, despite deflation,” he said. “For us to have a positive 6.1% profit rise and to deliver more cash is a strong number as well.”

On clothing, Bolland said Marks & Spencer has seen a far better consumer reaction to its ranges over the last year.

“Consumers have voted with their feet and said they liked the collections and therefore we were in growth over the last quarter,” he said; adding that the retailer’s quality and style ratings were up by 6% and 4% respectively.

Bolland revealed Marks & Spencer now has 130 in-house designers. “We have never had so much design capability,” he said.

Bolland said market share in clothing has increased to 10-11% and gross margins have grown strongly, delivering better profitability as a result of better sourcing.

On the current trading environment, Bolland said consumer confidence has grown strongly over the last two years, despite a drop just prior to the general election.

“We certainly expect confidence to come back after the election now,” he said. On the retail side, Bolland said Marks & Spencer was operating in a market with “very strong deflation in food” and that “on the high street that’s a more difficult thing to work in”.

Bolland said his work in turning around the business was not complete and we has focused on executing all the investments Marks & Spencer has made over the last three years. “I’m absolutely interested in the phase we are in now,” he said.

Natalie Berg, director, retail insights at Planet Retail, said Marks & Spencer’s rise in profitability was a result of a reduction in capital expenditure, increased sourcing efficiencies and a shift away from perpetual discounts. “Simply put, M&S is finally buying for less and selling for more,” she said.

“Let’s not forget that Marc Bolland, despite having had very big shoes to fill when taking over five years ago, inherited a host of legacy issues. He has brought one of Britain’s most iconic brands into the 21st century, putting in place vital new infrastructure, ultimately making M&S a more agile and digitally-aware retailer.

“Granted, it hasn’t been the smoothest of transformations and more work remains to be done, but today’s announcement will have certainly bought Bolland more time in the boardroom.”

Berg said Planet Retail remained cautious about a sustained recovery in womenswear but on a positive note, M&S appears to be finally providing its core 55+ shoppers the style, quality and price points they demand. “Equally important is the fact that recent supply chain enhancements have enabled M&S to improve stock availability, quickly replenishing those top-selling items,” she said.

“That said, they are not and never will be a fast fashion company. One of the reasons retailers like Next and Asos are so profoundly successful is because they have a very clearly defined target market. M&S, meanwhile, continues to chase younger shoppers while attempting to stay relevant to their core mature customer. The new Limited London capsule collection debuts next month, but do M&S shoppers really want cropped t-shirts and skinny denim dungarees?

“In today’s crowded market, retailers can no longer be all things to all people. As we have seen with M&S’ own food business, retailers today must have a distinct, targeted proposition in order to stand out among their peers.”