May 25, 2016
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M&S says turnaround plan to hit profit in short term

May 25, 2016

British retailer Marks & Spencer told investors on Wednesday to expect a short-term hit to profit as it pushes through a plan to turn around its underperforming clothing and homeware business, sending its shares sharply lower.

Steve Rowe, a 26-year company veteran, replaced Marc Bolland as boss of the 132-year-old British institution last month, moving up from the role he took only last July as head of the clothing division, which has seen five years of almost constant sales falls.

Fixing that business, which contributes about 60 percent of M&S's profit, is his priority.

Shares in the group, which are down a quarter over the last year, were trading 8 percent lower at 409 pence at 0733 GMT.

Rowe's plan is to focus on improvements to the quality, fit and availability of M&S's ranges. He will also lower prices, reduce the proportion of sales on promotion and increase store staffing levels.

"These actions, combined with the difficult trading conditions, will have an adverse effect on profit in the short term," he said.

"We are, however, confident that our commitment to delivering the right product, price and service will help return clothing and home sales to growth."

Rowe said the changes, together with continued growth in M&S's food division, would provide the firm with a solid base for a long-term sustainable business.
But he cautioned it would take time for customers to notice improvements and change their shopping behaviour.

Some analysts remained sceptical. "There is no easy fix for the general merchandise business," said Freddie George at broker Cantor Fitzgerald, who has a "sell" rating on the company.

"In the meantime, since 2008, M&S's track record has been at best underwhelming."

Rowe forecast the current year would see a similar sales trend to 2015-16, when revenue rose 2.4 percent to 10.6 billion pounds ($15.5 billion).

Underlying pretax profit came in at 689.6 million pounds ($1.01 billion) for the year to April 2, beating analysts' average forecast of 673 million pounds and the 661.2 million pounds made in 2014-15.

Prior to Wednesday's update analysts' consensus for 2016-17 and 2017-18 was 710 and 744 million pounds respectively.

Rowe said additional strategic questions, including international, the UK store estate and organisation would be addressed in the autumn.

M&S is paying a full year dividend of 18.7 pence, up 3.9 percent, and also announced a special dividend of 4.6 pence for the first half of the 2016/17 year.

$1 = 0.6843 pounds


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