Coronavirus: Marks & Spencer warns on profit as it considers store closures
Marks & Spencer issued a coronavirus-related profit warning today and alerted investors it may close stores temporarily amid the UK’s Covid-19 outbreak.
Its clothing and home divisions have suffered a big hit already from the UK coronavirus crisis, Marks & Spencer warned. As a result profit could fall below expectations of £440m to £460m.
“The final result could be at or below the bottom end of the range of profit before tax of £440-460m, given probable very depressed trading in Clothing and Home,” M&S warned.
And it also scrapped guidance on future earnings after Brits were told to work remotely and avoid public places to curb the spread of coronavirus.
While Marks & Spencer’s food business will trade profitably as shoppers stockpile goods, its focus on fresh and chilled produce means it will not see the same uplift as rival supermarkets.
And M&S warned of a “substantial impact” on clothing and home revenue for the first three to four months of the next financial year “at the very least”.
“Although it is possible that this may ease as we get into summer trading, margins are likely to be severely impacted by the surplus of unsold seasonal stock and probable clearance activity in the marketplace,” M&S said.
“We are therefore taking all possible steps to defer supply. However, a very large part of our core business is less seasonal year-round essential product and this should provide some scope for carrying forward stock. At this stage we are not assuming a return to normal trading in the autumn.”
M&S said it expects a “prolonged downturn” in demand for its clothing and home divisions, meaning it may have to close stores temporarily.
“We are seeing substantial sales declines in Clothing and Home and we have to manage our costs accordingly but expect to be able to redeploy significant numbers of colleagues to support the Food business,” the firm said.
Marks and Spencers’ share price was down by a further 7.07 per cent today, or 8.20p, to 107.80p a share, in the wake of the news.
‘Potential to derail M&S’
Sophie Lund-Yates, Equity Analyst at Hargreaves Lansdown: “Covid-19 has the potential to derail M&S’ Clothing & Home division for many months.
“These are uncertain times for retailers, but this is going to be a particular challenge for M&S as the Clothing & Home business has been struggling for a while.
“With lockdowns and closures disrupting trading in its international markets too, the pandemic situation is likely to really hurt the group’s top line. That will then feed down to weaker margins. If less stock is shifted and the group’s left with piles of inventory it will need to slash prices in order to sell it at a later date.”
M&S Food to save the day
“Marks & Spencer shares are firmly in the red today after the company warned that earnings are likely to be at the lower end of expectations, or perhaps even below expectations,” says David Madden, Market Analyst at CMC Markets UK.
“It is worth noting the stock did well earlier this week as there was an increase in food shopping across the board.
“M&S confirmed there has been a substantial fall in clothing sales since the health crisis kicked off, but staff from that division are being redeployed to the food unit to assist with the jump in demand. Tesco and Morrisons are in the red too.”