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M&S boss Steve Rowe warns profits will be hit by turnaround plan

Published 25/05/2016

Steve Rowe pledged to restore the fortunes of Marks & Spencer's general merchandise division
Steve Rowe pledged to restore the fortunes of Marks & Spencer's general merchandise division

Marks & Spencer's new boss, Steve Rowe, has warned profits will take a hit in the short term under a turnaround plan to slash clothing prices and put more staff in stores.

Shares in the high street stalwart tumbled as much as 9% on the gloomy earnings outlook as Mr Rowe admitted there was no quick fix in the battle to revive its beleaguered clothing arm.

But Mr Rowe, who took on the top job from Marc Bolland in April, said it was his "top priority" to get clothing sales back on track.

He will cut everyday prices for nearly a third - 30% - of its clothing ranges, while reducing promotions and clearance sales.

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

His highly-anticipated strategy overhaul came as the group unveiled a 4.3% rise in underlying pre-tax profits to £689.6 million for the 53 weeks to April 2.

Bottom line profits fell 18.5% to £488.8 million due to one-off costs of more than £200 million, including around £50 million from payment protection insurance mis-selling at M&S Bank.

At the heart of Mr Rowe's revamp is a plan to win back "Mrs M&S" - its once loyal army of women shoppers aged 50 and over, who he said have been "neglected" in recent years.

The group wants to go back to basics , with a focus on stylish wardrobe essentials that will appeal to these core customers.

As part of aims to improve its customer service, it will also put more staff in store, in particular cafes and changing rooms.

Mr Rowe said the turnaround of its clothing business "won't happen overnight", with sales likely to continue to fall initially as it cuts back on promotions and amid tough conditions on the high street.

Clothing and home sales dropped 2.9% over the full-year and have now fallen nearly consistently for five straight years.

Sales at its food halls were a bright spot in the results, with l ike-for-like growth of 0.2% over the year despite tough conditions in the grocery sector.

M&S now wants to ramp up new convenience store openings, with around another 100 Simply Food outlets planned per year over the next two years, on top of 250 due to open by next March.

Mr Rowe said: "Our results last year were mixed. We continued to outperform on food but we underperformed on clothing and home sales.

"This is not satisfactory and today we are outlining our initial plans to address the issues and to position Marks & Spencer to deliver profitable sales growth."

An M&S lifer, Mr Rowe is the latest boss to seek to revive the fortunes of the clothing business, which has struggled in recent years.

He said the plans mark the first phase of his strategy for the company, with further announcements due on the group's UK store estate and international division in the autumn.

Analysts gave his strategy overhaul a cautious welcome.

Liberum experts warned M&S may not deliver profits growth for "some years", with the "prize of profitable sales growth an aspiration and not a given".

But Shore Capital expressed faith in Mr Rowe - a company veteran of 26 years - saying he was "capable, decisive and passionate about the business".

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