Premium retailer Marks and Spencer saw profits drop by almost two thirds to £176.4 million last year, with the company taking time to adjust to a restructuring of the business.
The costs of opening new food-only stores, combined with a decline in clothing sales, saw pre-tax profits fall by 63.9 per cent in the 52 weeks to 1 April 2017, the retailer reported.
In addition to opening new Simply Food outlets, the company has moved to selling clothing and homeware in fewer outlets and reducing discounting.
Total like-for-like sales in the UK dropped 1.9 per cent, but the chain’s performance in food (-0.8 per cent) was marginally better than in clothing (-3.4 per cent).
Total food revenues – as opposed to like-for-like sales – increased by 4.2 per cent thanks to 68 new Simply Food store openings, including one relocation. According to the retailer, the performance of its new Simply Food stores exceeded sales forecasts by 17 per cent overall.
The fact that Easter fell after the end of the 2016-17 financial year dented the company’s performance, with the retailer estimating that this contributed to a 0.5 per cent reduction in like-for-like sales.
A series of one-off costs also damaged the retailer’s profits, with £156m spent on making changes to its pension scheme, £132m on international store closures, and another £49m invested in changes to its UK store estate.
The company lost an additional £44m when M&S Bank was hit by charges related to insurance mis-selling.
In 2016-17 the retailer introduced around 1,600 new or improved lines across its Simply Food stores, building on its reputation for health and wellness. It expanded its Made Without range and increased the proportion of Eat Well products.
Marks and Spencer CEO Steve Rowe said that while there was “still much to do” to successfully restructure the business, the company was “on track” with its turnaround plans announced last year.
“As we anticipated, the planned restructuring of M&S has come with a cost and has impacted profits,” Rowe said, “but the business is still strongly cash generative and we reduced our net debt.”
He added: “"We are almost exactly where we thought we would be and we are pleased with what we delivered this year.”
In food, the retailer expects to grow overall sales by seven per cent in the 2017-18 financial year as it plans to open around 90 new stores.
In clothing and homeware, meanwhile, the retailer expects to reduce store space by one to two per cent as it continues to move towards a greater focus on its food business.