Marks & Spencer PLC (LON:MKS) said its chief financial officer Helen Weir has stepped down as the retailer reported a 5.3% decline in first half profits.
The retailer said in a statement that Weir is leaving to pursue a “plural career” and will stay in the role until a successor has been found.
In a separate release, the company posted pre-tax profit before tax and adjusted items of £219.1mln for the six months to September 30, compared to £231.3mln in the year-ago period.
UK like-for-like sales fell by 0.3%, including a 0.1% drop in food sales and a 0.7% decline in the struggling clothing and home division.
Food headwinds prompt M&S to scale back store openings
M&S said the headwinds facing the food business have intensified amid tough competition and rising inflation that has prompted consumers tighten their purse strings and avoid buying the premium grocery items at the company’s stores.
A weaker pound following last year’s Brexit vote has also pushed the cost of food imports higher, hitting margins. Gross margin in groceries fell 25 basis points (bps) and the company expects margins for the full year to fall between 75 and 125 bps.
The group has decided to scale back plans to open further Simply Food stores in order to “reposition our food offer for future growth”.
Last year, M&S had said it would roll-out 200 new food stores by the end of 2019 but it will now only open stores that deliver the highest returns. It expects to open 80 new Simply Food stores for the year, increasing its space by about 5%.
“We recognise now that we face stronger headwinds in food which will be addressed in the year ahead,” said chief executive Steve Rowe.
Clothing still under pressure but turnaround 'encouraging'
The company is also in the process of trying to turnaround its clothing and home business by revamping product ranges and lowering prices. Amid struggles in the division, the group said last year, its 300 clothing stores would be closed, moved or remodelled to remove excess space.
Rowe said early results have been “encouraging” with full price sales rising 5.3% in the first half after scrapping two clearance sales and cutting back on promotions.
"The business still has many structural issues to tackle as we embark on the next five years of our transformation, in the context of a very challenging retail and consumer environment,” he added.
Turnaround undermined by tough retail market
Laith Khalaf, senior analyst at Hargreaves Lansdown said: "This is not a pretty set of results for M&S, which has seen its turnaround plan undermined by changing consumer shopping habits and a weaker pound."
He added: "The food business has been keeping M&S afloat in recent years, but now progress seems to be flagging here, the clothing division needs to start pulling its own weight."
Khalaf also noted that the retailer has been pretty late to the party in launching an online trial for grocery deliveries.
He said the challenge is making the economics work as basket sizes tend to be smaller at M&S and consumers don't tend to use the retailer for their main weekly shop.
"A partnership with the likes of Ocado would therefore seem a rather neat solution to this particular problem, and though mooted, M&S now seems to be ploughing its own furrow," he said.
Investors impatient for results
AJ Bell investment director Russ Mould said the stock market seems to be "terribly impatient" to see the company's turnaround efforts wield results, given the initial share price decline following the results.
Shares recovered in afternoon trading, rising 1.43% to 332.50p.
“It is hard to argue that any company making more than £550 mln a year (on an underling basis, at least) is broken but investors are clearly nervous about margin pressure in the food business and M&S still has to be careful to ensure that flat-lining profits do not lead to a slow decline that finally becomes a sudden, rapid fall," he said.
Mould suggested there were five things M&S needed to get right to have a chance of lifting profits. Firstly, it needs to get the fashion basis right by focusing on its strengths in areas such as denim and lingerie, he said.
He suggested M&S should also improve its style in fashion ranges, focus on quality rather than prices, cut down store space and iron out the problems with its online shopping and click and collect services.
M&S faces tough Christmas period
Neil Wilson, senior market analyst at ETX Capital, said the real test for M&S will be Christmas and weak figures for October from high street peers, including Next and John Lewis, "suggests things could be rough".
"And M&S is up against a pretty solid comparative period, when total UK LFL sales were +1.3% (Clothing & Home +2.3%, Food +0.6%)on the year-ago period, albeit the 2015 Christmas trading period was exceptionally weak. Paddington needs to deliver," he said, referring to the company's Christmas ad featuring Paddington Bear.
"From the statement however it is unclear what exactly management thinks regards Christmas and this could be a sign of nervousness about the slacker consumer market.”