Marks & Spencer CEO warns there are ‘still many structural issues’ as turnaround plan accelerates

Steve Rowe, CEO of Marks and Spencer.REUTERS/Toby Melville

• M&S “accelerating our plans to build a business with sustainable, profitable growth, making M&S special again.”
• Half-year results show revenue up 2.3% but profits slipping 5%.
• CFO Helen Weir leaving.

LONDON — Marks & Spencer CEO Steve Rowe said on Wednesday that he is accelerating the pace of his turnaround plan as figures show steady revenue but slipping profits.

However, shares opened higher on Wednesday morning as the City was expecting a worse profit performance. Neil Wilson, a senior market analyst at ETX Capital, called Marks & Spencer’s half-year numbers “pretty solid results with revenues in the half year up and profits not sliding by as much as expected.”

Rowe said in a statement on Wednesday: “The business still has many structural issues to tackle as we embark on the next five years of our transformation, in the context of a very challenging retail and consumer environment. Today we are accelerating our plans to build a business with sustainable, profitable growth, making M&S special again.”

M&S said on Wednesday it will “accelerate our UK Clothing & Home space rationalisation plan” and told investors to expect floor space in this area to shrink by 1.5% next year, suggesting more M&S stores could close.

Marks & Spencer has been underperforming the market and rivals for at least a decade and Rowe, an M&S veteran, was appointed CEO in April 2016 with the brief of turning around the business. He has been reducing discounting, closing underperforming stores, and rolling out more food stores, one of the better performing areas of M&S.

Rowe said M&S has made “good progress in remedying the immediate and burning issues.” Half-year results, published on Wednesday, show:

• Revenue up 2.6% to £5.1 billion
• Profit before adjusted items down 5.3% to £219.1 million
• Profit after tax and adjusted items up 432% to £84.6 million.

The City had been expecting profit before adjustments to fall by 10% and M&S shares opened 2% higher. However, gains were quickly eroded and, at 8.15 a.m. GMT (4.15 a.m. ET), shares are up 0.9%:Markets Insider

The swift reversal appears to be driven by investors noticing M&S’ more cautious tone when it comes to food retailing. The department store said it is slowing the rollout of more standalone food stores as “headwinds… have intensified as competitors have encroached on some of our space with the rapid growth of convenience.”

Independent retail analyst Nick Bubb said in his Wednesday morning email: “Just as the struggling Clothing and Home business of Marks & Spencer appears to have turned a corner, a new problem has emerged.”

Helen Weir, Marks & Spencer.Marks & Spencer

M&S said it will “reposition our food offer for future growth.” The business has recently moved into the online grocery market.

ETX Capital’s Wilson said: “The real test is Christmas and the weak figures for October from the industry (Next, John Lewis), suggests things could be rough.

“From the statement, it is unclear what exactly management thinks regards Christmas and this could be a sign of nervousness about the slacker consumer market.”

Separately on Wednesday, M&S announced that CFO Helen Weir is leaving to “pursue a plural career.” Weir has been at M&S since 2015 and will remain in the role until a replacement can be found.