In an echo of the policies of the Soviet Union, Marks & Spencer Group PLC (LON:MKS) has announced a five-year plan to revive its fortunes.
Like sector peer Tesco before it, Marks & Spencer (M&S) has opted to rein in its international ambitions to focus on revitalising its core UK business where, as usual, the food side of the business is doing fine and the clothing & home side continues to disappoint.
The company, as widely leaked, announced the closure of 60 clothing stores over the next five years, while it intends to continue to roll out its highly successful Simply Food outlets.
The net effect will actually be an increase in the number of M&S outlets in the UK by 2019, albeit with a much greater emphasis on food stores.
Meanwhile, overseas, the company will switch to a franchise model, exiting its loss-making owned business across ten markets, which will lead to one-off costs of between £150mln and £200mln.
Group revenue in the 26 weeks to 1 October clocked in at £4.99bn, up a shade on £4.95bn in the corresponding period of last year.
Sales at its UK stores were barely changed at £4.45bn, while international stores saw sales rise 7.6% to £545mln.
On a constant currency basis, like-for-like (LFL) UK sales in the second quarter were 0.9% lower than in the same period of 2015, but that represented an improvement on the 4.3% decline in the first quarter.
Clothing & home sales on a LFL basis fell 2.4% from the year before in the second quarter, versus an 8.3% decline in the preceding quarter.
Total food sales on a LFL basis were down 0.9% in the second quarter, as they were in the first.
Statutory profit before tax plunged to £25.1mln from £216.0mln the year before, largely as a result of £206.2mln in one-off charges, including £154.2mln in changes to pay and pensions.
Underlying profit before tax fell 18.65 to £231.3mln from £284.0mln last time round.
There was mixed news on the dividend front, with the company maintaining the interim dividend of 6.8p but it will not be returning any additional cash to shareholders in the second half of the financial year, as it needs as much wonga as possible to finance its strategic change of direction in an uncertain market.
"We have now completed a forensic review of our estate both in the UK and in our International markets. Over the next five years we will transform our UK estate with c.60 fewer Clothing & Home stores, whilst continuing to increase the number of our Simply Food stores. In the future, we will have more inspiring stores in places where customers want to shop that complement our growing digital offer,” claimed chief executive Steve Rowe, who replaced Marc Bolland in the hot-seat earlier this year.
"Internationally, we propose to cease trading in ten loss making owned markets, but intend to continue to develop our presence through our strong franchise partners.
"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," Rowe said.
Shares were little changed, off a halfpenny at 348.5p after an hour or so of trading, reflecting the fact that the changes were widely expected.
Laith Khalaf, a senior analyst at broker and wealth manager Hargreaves Lansdown said M&S is cutting its cloth to meet the changing shopping habits of its customers.
“Clothing is a tough game, but food retail is no picnic either, with Aldi and Lidl eating up market share, and Amazon lurking in the wings with its new grocery delivery service; however, this is a market where M&S has shown it is able to consistently grow sales, and with premium products on the shelves it is more insulated from the discounters than the likes of Asda and Morrisons,” Khalaf claimed.
“This is the Steve Rowe’s first big step as M&S boss since taking up the role six months ago, and it looks like a bold one. It makes sense for the business to go to where the customers are by placing greater emphasis on food, though the sands shift pretty quickly in the retail business, and the best laid plans can go astray,” he added.