Marks & Spencer Post First-Ever Loss In 94 Years After Its Clothing Sales Collapsed

Summary

• M&S has reported a loss after tax of £6 million in the first half-year of 2020, its first in 94 years
• The company has witnessed a loss majorly from its apparel segment
• M&S’s other two business segments - the food retail and the home improvement – witnessed a good performance.

Retailer Marks and Spencer, one of the best-known premium brands in the country, has run into the red for the first half of this year due to the coronavirus pandemic. The retail giant has reported a loss for the first time in 94 years as a publicly listed company after the premium apparel segment witnessed a dip in its revenue.

M&S’s clothing sales witnessed a fall of 60 per cent during the first lockdown in March, however then the company was in a sound position. Some reports said that there have been many store closures and job cuts in the last few months, which has helped the company in narrowing the profit-loss gap. However, the massive fall in demand for high street fashionwear is something the company could not contain, which led to heavy losses in the apparel sector. 

The company has accelerated its transition process to adapt to the rapidly changing business environment and is hopeful that it will perform better in the next couple of quarters. 

M&S earlier observation

Chief of Mark & Spencer Steve Rowe had stated in May that the company has been observing fundamental changes in the behaviour of Britons in their spending habits because of the pandemic. 

The company is witnessing a hit from two sides one from online retailing and the other from the lockdown. While online retailing is allowing people to shop from home, the work from home has discouraged people from buying high-end clothes.  

In the recent past, the company has seen more sales coming from its grocery division. M & S has decided to close as much as 120 of its stores shortly and shift about a third of its apparels business online in the wake of the COVID-19 pandemic that has led to the rise in digital commerce.

New strategy for food retailing

M&S had formed a joint venture last year with Ocado Group plc called Ocado Retail. The objective of this new venture was to provide a strong online retailing platform to its  food segment. 

The new venture, which started its commercial operations on 1 September, is already being well received in the marketplace as compared to the company’s earlier singular online venture. Ocado covers 74 per cent of all British households, which is proving profitable for M&S from the sales perspective. 

The COVID-19 pandemic has also helped the new venture to flourish. During the lockdown, when people opted to shop on this platform as they were solely dependent on online grocers to keep themselves provisioned. 

Even after the lockdown, most people preferred shopping online. Given the second lockdown and rising coronavirus numbers, it is likely that online retailing will be make more money at least for the next few quarters.

M&S half-year results

In its half yearly results, which out on 4 November, the group’s total revenue stood at £4.09 billion, compared to £4.86 billion for the same period last year, which 15.8% lower than last year. 

The group operating profit for the period stood at £61.8 million, compared to £269.9 million for the same period last year, signifying a drop of 77.1 per cent.

The loss of the company after tax for H1 2020 was £71.6 million, whereas for the previous year, the company had reported a profit after tax of £122.4 million.

The basic loss per share for the period stood at 3.5 pence, whereas for the same period last year, the company had reported a basic profit per share of 6.4 pence. 

The net debt as on 26 September was £3.91 billion, which is a 5.6 per cent drop compared to the net debt of £4.14 billion in the same time period last year.

Last year in H1, the company had declared a dividend of 3.9 pence, but this year the management has not made any dividend announcement.

For the first six-month period last year, the company had declared a dividend of 3.9 pence, but this year the management has not made any dividend announcement and stated that they won’t be paying any dividend for the 2020/21 financial year.

The share price performance of Marks & Spencer Group plc (LON:MKS)

Source- Thomson Reuters (six- months performance)

As on 06 November 2020, the share of Marks & Spencer Group plc has been trading at GBX 97.32 (10.07 AM GMT+1), up by 1.34 per cent over the previous day’s close.