Mar 20, 2020
Reading time
3 minutes
Download the article
Click here to print
Text size
aA+ aA-

M&S fashion ops take coronavirus hit, stays upbeat but plans for "severe impact"

Mar 20, 2020

Marks & Spencer issued the kind of statement we’ve become used to hearing from retailers on Friday with a bleak assessment of what the coronavirus is doing to parts of its business. But it added a longer term belief in its transformation programme’s ability to turn around its fortunes. For now though, it’s clear that while its Foods operation remain buoyant, Clothing and Home is struggling.

M&S's fashion ops are being hurt by the coronavirus - Photo: Sandra Halliday

The company said it's learning more about the effects on a daily basis and (as retail peer Next said on Thursday) “running a range of scenarios as to the possible impact on sales, profit, and cash flows”.

It remains “confident that the post crisis future of the business and our transformation programme remains as strong as ever, [but] trading over the next 9-12 months in our Clothing and Home and International businesses is likely to be severely impacted”.

It’s seeing substantial sales declines in Clothing and Home and “we have to manage our costs accordingly but expect to be able to redeploy significant numbers of colleagues to support the Food business”. That’s because its Food business “has so far remained strong illustrating the resilience we derive from having the combination of related businesses under one umbrella”.

Its forecast for group pre-tax profit (PBT) for the quarter to date “has been adversely affected by the virus but was within the range of market expectations and in line with the guidance issued in January until the current week”. The final result “could be at or below the bottom end of the range of PBT of £440m-£460m, given probable very depressed trading in Clothing and Home”.

It’s now planning on the basis of “a prolonged downturn” in demand for Clothing and Home and said some stores may have to close temporarily. “However, our business model of operating parallel Clothing and Food businesses and our strategy to move online, including the Ocado joint venture, should provide more resilience than some single sector businesses,” it added. 

Long-term fashion impact

The dent to the Clothing and Home Business is expected to last, at the very least, for three or four months into the new financial year, although it's possible that this may ease as summer trading gets under way. Even if that's the case, it said “margins are likely to be severely impacted by the surplus of unsold seasonal stock and probable clearance activity in the marketplace. We are therefore taking all possible steps to defer supply. However, a very large part of our core business is less seasonal year-round essential product and this should provide some scope for carrying forward stock”.

So does that mean it will be business as usual from the autumn season? Probably not. “At this stage we are not assuming a return to normal trading in the autumn,” it explained.

The firm expects its Food business “to trade profitably throughout,” although its “heavy bias to chilled and fresh means we are not seeing the forward buying uplift experienced by the major grocers”. That said, the “significant shift to eating in home should however continue to benefit sales in the months ahead. Although there will undoubtedly be supply interruptions, we do not expect these to be prolonged or financially material”. 

Its International business will see significant reductions in sales as multiple other markets in which it trades are adversely affected by local outbreaks of the virus and in some cases lockdown and closures. “We further anticipate some additional Brexit-related costs impacting our French and Irish businesses starting at the end of the year,” it added, referencing that once-dominant news theme that has taken a back seat in recent weeks.

The company also welcomed government support on business rates as it paid out around £180 million for those property taxes in the UK last year. It added that it's working to cut costs by postponing capital spending, deferring all pay increases and deferring or cancelling discretionary spend. That includes reducing its marketing spend. It's also reducing the supply pipeline by over £100 million and working to grow its online penetration.

It’s in no danger of running out of cash. The group has access to substantial liquidity through its £1.1 billion revolving credit facility, as well as a further £50 million of uncommitted facilities and current cash balances of around £185 million. 

Copyright © 2023 FashionNetwork.com All rights reserved.