Marks & Spencer Group PLC (LON:MKS) saw its shares rally higher this morning as the high street retailer's 10% drop in full-year profit proved to be less than forecast, even though its clothing and homeware sales fell in the current quarter as a previous recovery stalled.
M&S reported a pre-tax profit before one off items of £613.8mln for the 52 weeks to April 1, down from £690mln a year earlier, but ahead of the consensus forecast of £593mln.
The profit decline came as fourth quarter clothing and homeware like-for-like sales fell by 5.9%, more than analysts' forecasts for a 3.3% decline, having increased by 2.3% in the previous quarter.
READ: M&S up as it posts first quarterly rise in clothing sales in nearly two years
The retailer saw its like-for-like food sales fall by 2.1% in the fourth quarter, after a 0.6% increase in the previous period..
For the full-year, clothing and homeware like-for-like sales fell by 3.4%, and like-for-like food sales fell by 0.8%, giving a total like-for-like sales decline of 1.9%
Fourth quarter sales figures were hit by a later Easter falling outside the period and by the key days of the busy post-Christmas sale coming in the third, rather than the fourth, quarter.
Steve Rowe, Marks & Spencer CEO said: “As we anticipated, the planned restructuring of M&S has come with a cost and has impacted profits, but the business is still strongly cash generative and we reduced our net debt.”
He added: "Looking ahead, we will continue our programme of self-help in a tough trading environment.”
M&S kept its full year dividend unchanged at 18.7p.
After initially opening lower, M&S shares rallied 1.5% higher to 393.6p after around an hour of trading.
Restructuring the business comes at a cost, says analyst
Laith Khalaf, senior analyst, Hargreaves Lansdown: “The new M&S boss Steve Rowe is pulling out all the stops to turn performance around, but restructuring the business comes at a cost, and that’s why the company has posted a huge fall in profits.
“On top of its own singular problems, M&S is facing some big economic headwinds, in particular the fall in sterling, which is pushing up the price of food and clothes against a backdrop of squeezed consumer incomes.
“The high street is also in decline as more of us turn to our mobiles and tablets to do our shopping, which leaves M&S fighting an even steeper uphill battle.”
He added: “All of this paints a pretty gloomy picture for the high street retailers for the foreseeable future. The new strategy at Marks and Spencer is much needed, and may eventually pay off, but it’s not going to be an easy ride.’
-- Adds share price, analyst comment --