May 20, 2020
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M&S to hibernate £200m "stock bulge", lockdown sales drop but reshaping plan on track

May 20, 2020

The results report from M&S didn’t make pleasant reading on Wednesday, although the figures in it came as no surprise after months of lockdown and after the firm had already been struggling pre-pandemic.

M&S sales have fallen sharply in the pandemic - Sandra Halliday

But while the figures for the 52 weeks to March 28 were undeniably interesting, the more recent numbers were what really mattered and there’s no disguising the problem that the UK lockdown has caused.

Online has risen in the past six weeks but store sales, especially in Clothing & Home, “were reduced to a trickle due to the closure of space running down 98.8% year-on-year at the low point”. 

And “although online Clothing & Home has traded throughout, demand in the initial weeks for clothing was very low with a gradual uplift since. In the last three weeks online sales have been running 20% up year-on-year.”

Overall in the latest six weeks, Clothing & Home demand was down 75% with Food down 8.8%, International down 51.3% and the overall group’s sales down 32.7%.

This has all meant the firm has lots of surplus stock on its hands. It said it closed 2019/20 with Clothing & Home stock of around £500m and had previously committed to forward orders of £560m scheduled to arrive in the following six months. But it has now cancelled late summer stock that’s no longer required, reducing forward commitments at cost by £100m. Of the balance of stock and forward orders, around £400m is year-round basic product “where M&S trades strongly and which will be carried forward at low risk, albeit creating a short-term increase in stock carrying levels”.

It has also made arrangements to “hibernate” around £200m worth of stock until Spring 2021, and has taken a charge of £145.3m to reflect the cumulative impact of the combined handling, clearance, hibernation and write-off of the “stock bulge”.


So what about last year? The headline figures included group revenue down 1.9% at £10.181bn, with pre-tax/pre-adjustments profit down 21.% at £403.1m. Pre-tax profit fell 20.2% to £67.2m and net profit was down 39.5% to £27.4m.

Those figures may not look good but CEO Steve Rowe was reasonably upbeat. “[The] results reflect a year of substantial progress and change including the transformative investment in Ocado Retail, outperformance in Food and some green shoots in Clothing in the second half,” he explained.  

“However, they now seem like ancient history as the trauma of the Covid crisis has galvanised our colleagues to secure the future of the business. From the outset we recognised that we were facing a crisis whose effects and aftershocks will endure for the coming year and beyond: 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. I am determined to act now to capture this and deliver a renewed, more agile business in a world that will never be the same again.”

While the company saw a “strong” Food like-for-like (LFL) revenue rise of 1.9% and Food operating profit up 11.2%, Clothing LFL revenue declined 6.2% and its operating profit was down 37%, “adversely impacted by availability in H1”. Availability of certain key products has been an issue for the company before and led to the departure of its Clothing & Home boss last year. But the firm said the “re-engineering of ranges accelerated during the year”.

During the period, it also acquired 50% of Ocado Retail, which should transform its grocery offer, but could also offer support to fashion as it means a more sophisticated delivery operation overall.

The company said the UK Clothing & Home business experienced a year of “substantial reshaping under new leadership, resulting in some encouraging performance indicators in the second half”. However, revenue declined 8.3% overall, including an estimated 2.2% adverse impact from Covid-19 in March. Online revenue was “level”. The operating profit decline was “largely driven by lower sales, gross margin headwinds related to sourcing and promotional mix and the impact of the crisis”.

The firm said that "trading in the first half was affected by availability issues in Womenswear and in the second half by teething issues with the move of Menswear towards a more contemporary style and fit”. However, towards the end of the year, prior to the effects of Covid-19, performance in Womenswear and Kids was “encouraging, Menswear saw improving sales trends and Lingerie held its market-leading share”. 

M&S elaborated on this saying that in Womenswear, “reshaping the buy and more contemporary style resulted in improving performance up until the onset of the crisis. The focus on core strengths and hero categories resulted in some strong uplifts. In denim the market leading position was extended with a sales uplift of over 10% over two years.” 

The successful launch of Goodmove also resulted in increases in share of activewear and sales growth in the category of 16% in the three months post-launch.

Kidswear under a new leadership team “started to reduce the breadth of range and focused on stronger casual basics at better value resulting in LFL sales growth in the second half”.

As mentioned, Menswear “experienced initial problems with size and fit as the range migrated towards a more contemporary style and look, in order to address issues in the shape of buy. However, these issues should be non-recurring and we saw encouraging uplifts for instance in knitwear, the standout category, with LFL sales growth of 5.6%”.

Lingerie market share held at 27%, and it saw strong performances from its ‘Collection’ offer “as option count was marginally reduced”.

And the online performance improved prior to the adverse impact of Covid-19 on trading in March, “but not as fast as expected and is being reorganised under new leadership as part of the post Covid-19 programme”.


Looking ahead, the company said it has more than enough liquidity to see it through the crisis, even though it believes the direct impact of that crisis on sales and stock flow "will last through the year and that subsequent demand may be depressed”.

It has stress-tested various scenarios and said it can withstand “a longer and deeper impact on trading”. 

For its 2020/21 year, it’s operating on the conservative assumption that UK Clothing & Home will see a 70% decline in revenue for the four months to July and only a gradual return to original budgeted levels by February 2021, impacting annual revenue by around £1.5bn. That would mean an annual fall of 46%. 

International Clothing & Home revenue is forecast to follow a similar pattern to the UK, although the smaller size of this operation will mean a revenue hit of ‘only’ around £0.2bn, or an annual fall of 22%.

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