Britain’s M&S to Close Stores as Profits Fall

Britain's Marks & Spencer said it would shut stores at home and abroad, with its new boss seeking to cut costs as part of a revival plan that will reduce its UK clothing space and switch the business more towards food.

By James Davey

LONDON, Nov 8 – Britain’s Marks & Spencer said it would shut about 30 stores at home and 53 abroad, with its new boss seeking to revive the retailer by focusing more on food and less on its struggling clothes and homewares ranges.

The retailer, whose shares have fallen 22 percent so far this year, reported an 18.6 percent slump in first-half profit and another fall in quarterly clothing sales.

Steve Rowe, a 26-year company veteran, took over as CEO in April and has the tough task of reviving a 132-year-old British institution that has fallen out of fashion over the last decade.

“These are tough decisions, but vital to building a future M&S that is simpler, more relevant, multi-channel and focused on delivering sustainable returns,” he said.

So far, Rowe’s priority has been trying to turn around M&S’s underperforming clothing and homewares business.

But on Tuesday he outlined how the firm will streamline its British store estate of over 900 stores over five years and detailed a rationalisation of its international operations.

M&S would reposition about 25 percent of its UK clothing and home space, closing about 30 full line UK stores and changing around 45 stores to only sell food. Other stores would be re-located.

The cost of the programme would be 50 million pounds ($62 million) for the next three years, rising to about 100 million pounds in years four and five.

Expansion will focus on M&S’s food business, which contributes over half of group revenue and about a third of profit. In May Rowe said M&S would add an additional 200 food shops by 2019.

M&S will also exit its loss-making owned business across 10 international markets, including France and China, at a cost of 150-200 million pounds over the coming 12 month period, thereby eliminating annual losses of 45 million pounds, leaving it with franchised stores.

The firm currently trades from 468 overseas stores across 58 international markets, with 194 owned stores and 274 franchise stores.

Rowe has pledged to revive M&S’s clothing by improving ranges and availability, cutting prices and reducing promotions.

However his plan, outlined in May, came with a warning of a short-term dent to sales and profit.

M&S reported an underlying pretax profit for its first half to Oct. 1 of 231.1 million pounds – better than analysts’ consensus forecast of 216 million pounds but down from 284 million pounds a year earlier.

Second-quarter clothing and home sales at stores open over a year fell 2.9 percent – ahead of analysts’ average forecast of down 3.9 percent and an improvement on a first quarter slump of 8.9 percent which was its worst performance for a decade.

Second quarter like-for-like food sales fell 0.9 percent.

M&S said that given the recent depreciation of sterling it now expects growth in the clothing and home gross margin of between 0 and 50 basis points for the 2016-17 year, down from previous guidance of up 50-100 basis points.

M&S maintained its interim dividend at 6.8 pence but said it would not make an additional return of cash to shareholders in the second half due to the costs of its plan and uncertain market conditions.

Shares in group were up 0.5 percent in early trading.

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