M&S sinks to a loss as store closures hammer clothing business
M&S has reported an annual loss as sales in its clothing division collapsed during the pandemic.
The high street stalwart reported a £201.2m pre-tax loss in the 52 weeks to 27 March 2021, down from a pre-tax profit of £67.2m in the previous year.
M&S Food sales dipped 0.6 per cent across the year with operating profit before one-off items coming in at £213.6m. This was largely due to the closure of convenience and hospitality businesses, which could only be partially offset by the £306.1m worth of government support.
As a result M&S will now close 30 stores saying a number of its clothing and home shops were in “long-term decline” and it could not justify future investment.
Despite the gloomy news, shares in the high street stalwart popped 4.6 per cent to 163p per share.
John Moore, senior investment manager at Brewin Dolphin, suggests this is because of a “meaningful reduction in debt and the recognition that the company needs to manage and reimagine its physical estate are steps in the right direction.”
“Even more transformation of the company is required and it is encouraging to see that acknowledged and set out in some detail in this statement,” he added.
The retailer’s partnership with Ocado contributed a share of net income of £78.4m.
Resilient trading in its food division did little to offset the 31.5 per cent drop in M&S clothing sales with the division reporting an operating loss before one-off items of £129.4m.
Losses reduced in the second half of the year ahead of the festive season and customers moved online. M&S said its online clothing and home business had generated strong profitability with an operating margin of around 14 per cent.
The retailer said overall trading for the first six weeks of the financial year had been positive as stores started to reopen. Its food division continues to trade strongly while clothing and home sales have grown since reopening with online remaining “robust”.
“While encouraging, it is unclear how the recovery will develop and if consumer activity will sustain. International markets continue to face headwinds with ongoing disruption and the material costs of Brexit which we are working to mitigate,” it said, forecasting pre-tax profit of between £300m and £350m.
John Moore, senior investment manager at Brewin Dolphin, said of the results: “The loss reported in today’s results from M&S will likely be what grabs the headlines; but, away from that, a meaningful reduction in debt and the recognition that the company needs to manage and reimagine its physical estate are steps in the right direction.
“The food division and the Ocado partnership have been the focal points for M&S, and are beginning to reap the rewards of investment as well as the changes that have been put in place and accelerated during the pandemic.
“However, even more transformation of the company is required and it is encouraging to see that acknowledged and set out in some detail in this statement,” he added.