Marks & Spencer to 'hibernate' fashion stock as Covid-19 drags down revenues

Marks & Spencer has released a full-year trading update revealing the extent of the impact Covid-19 has had on the business and laying out its strategic road to recovery.

For the 52 weeks to March 28, revenue at the British retail giant fell slightly by 1.9 percent to 10.18 billion pounds. Fourth-quarter revenue was down 2.6 percent, heavily impacted by the outbreak of Covid-19 in March.

The retailer’s profit before tax and adjusting items fell by 21.2 percent to 403.1 million pounds, including a 52 million pound impact from Covid-19 in March.

The company estimated that cost and stock write downs caused by Covid-19 totalled around 212.8 million pounds.

“Last year's 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,” said Marks & Spencer CEO Steve Rowe in a statement. “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.”

Marks & Spencer clothing revenue down 8.3 percent

Clothing revenue fell by 8.3 percent overall during a year of “substantial reshaping”, while like-for-like sales were down 6.2 percent - an estimated 2.2 percent of that a result of the adverse impact from Covid-19. Operating profit dropped by 37 percent, “largely driven by lower sales, gross margin headwinds related to sourcing and promotional mix and the impact of the crisis.”

The company said first-half trading was affected by availability issues in womenswear and then by “teething issues” with the transition of its menswear range towards a more contemporary style. Prior to the Covid-19 outbreak, however, the company said its performance in Womenswear and Kids was “encouraging”, and that Menswear saw improving sales trends.

Marks & Spencer forecasts a 70 percent drop in clothing and home sales in the four months to July, before a gradual return to original budgeted levels by February 2021. This is expected to impact annual revenue by around 1.5 billion pounds.

In terms of the issue of stock in light of Covid-19, Marks & Spencer said it has cancelled its late summer stock, reducing forward commitment at cost by 100 million pounds. The company said it has also made arrangements to “hibernate” around 200 million pounds worth of unsold seasonal stock until Spring 2021 and has taken a charge of 145.3 million pounds to “reflect the cumulative impact of the combined handling, clearance, hibernation and write-off of the stock bulge.”

The company also announced over 1 billion pounds of actions, including around 500 million pounds of planned cost reductions and further actions to manage cash under scenario planning for Covid-19.

Photo credit: Marks & Spencer

 

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