Marks & Spencer Group PLC (LON:MKS) reported a big fall in full-year profits but said sales and cash flow under the coronavirus lockdown have not been quite as bad as it expected.
Revenue for the 52 weeks to 28 March came out at £10.2bn, down 2% on the previous year, with profit before tax falling 20% to £67.2mln.
Food like-for-like sales grew 1.9% and operating profit was up 11.2%, but clothing LFL revenues declined 6.2% and operating profit was down 37% after availability issues in the first half.
The 50-50 online grocery join venture, Ocado Retail, acquired last August at a cost that could rise to £769mln, delivered a profit contribution for M&S of just £2.6mln, but with the product switchover from Waitrose to M&S not due until 1 September.
In the six weeks of the new financial year, food sales are down 9% and clothing down 75%, but cashflow was reported to be more than £150mln better than the retailer’s initial scenario.
Nevertheless, the group has still been experiencing a cash outflow during the lockdown period, which is expected to result in drawdown from its banks peaking in early autumn some way below the £600mln level previously predicted, out of a total £1.1bn facility.
Furthermore, the mounting backlog of unsold clothing meant the financial year finished with stock worth roughly £500mln and committed forward orders of another £560mln scheduled to arrive in the following six months, resulting in management taking a total charge of £157mln for the costs of cancelling some clothing orders, ‘hibernating’ others and write-offs.
Chief executive Steve Rowe said the pandemic will have a substantial and permanent effect on M&S: “Whilst some customer habits will return to normal others have changed forever, the trend towards digital has been accelerated, and changes to the shape of the high street brought forward.
“Most importantly working habits have been transformed and we have discovered we can work in a faster, leaner, more effective way.”
He outlined a new £1bn plans split equally between reducing costs and improve cash, including £220mln from government support, as well as reducing capex, better cash management and the previously announced dividend cut.
Shares in the company rose 7% on Wednesday morning to 92.2p, though are still down 57% since the start of the year.
Analysts at UBS said underlying PBT of £403mln was short of the consensus forecast of £421mln, due to an adverse profit impact of £52mln in March from Covid-19.
Fourth-quarter LFL sales down 13.8% for clothing and home was worse than expected, while a 4.6% increase for food were, respectively worse and better than expectations.
Richard Hunter at Interactive Investor said: “The Covid-19 crisis may unwittingly have provided M&S with the catalyst it needed to overhaul its slumbering prospects.
“The direct impact of the pandemic may have been felt mostly in its stores and largely therefore on its Clothing & Home lines, but it has also galvanised the company into a rethink of the entire business, scything through layers of unnecessary processes and costs in anticipation of how the consumer may shop on the other side of the current economic shock.”
He said amending credit lines will give the company an estimated liquidity headroom of up to 18 months and should assuage investors who had been concerned as to the company’s viability.
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