* M&S FY underlying pretax profit 623 mln stg, down 3.9 pct
* FY sales 10.3 bln stg, up 2.7 pct but below target
* Forecasts higher margins, capex drop, possible cash return
* No annual bonus to be paid to any employee
* Shares fall 3.8 pct
(Adds detail, background, CFO comments, updates shares)
By James Davey
LONDON, May 20 British retailer Marks & Spencer
warned its new website would dent first-quarter sales figures,
but held out the prospect of cash returns to investors as a more
efficient supply chain boosts profitability after three years of
M&S shares fell as much as 3.8 percent on Tuesday
after it said the website would take up to six months to "settle
in" after launching in February, hitting general merchandise
sales in the three months to the end of June.
Britain's biggest clothing retailer, which also sells
homewares and upmarket food, said no one in the company would
receive a bonus payment this year as performance targets had not
been met. The last time M&S did not pay any bonus was 2008-09.
"Nothing's gone wrong," Chief Financial Officer Alan Stewart
told reporters when asked about the new website, a pillar of
M&S's intended transformation into an international retailer
reaching customers through stores, the web and mobile devices.
"It will take four to six months to settle down... We've
seen others in the market who've taken longer. But it's what we
expected to see," said Stewart, pointing out that 2.5 million
customers had registered on the new website, including 700,000
Some analysts were sceptical. "We understand that the
declines here have been material and we are not sure that this
is just a natural settling down process or something more," said
Espirito Santo analyst Tony Shiret, who has a "neutral" rating
on M&S shares.
The company said better clothing sales evident in its fourth
quarter had continued in its stores in its new financial year,
while the food business continued to outperform the market.
M&S is trying to shake off a reputation for functional but
dull clothes, with its new strategy focusing on higher quality
and more fashionable styles that satisfy its core customers aged
45 and over while also appealing to younger shoppers.
CEO Marc Bolland has spent 2.3 billion pounds ($3.9 billion)
in the last three years pushing through the changes to address
decades of under-investment, overseeing the redesign of products
and stores and an overhaul of logistics to serve the new
But a new clothing team he set up in 2012 has so far failed
to deliver a durable pick-up in sales and, for the first time,
M&S earned less in the year to the end of March than its faster
growing rival Next.
Full-year sales of 10.3 billion pounds - up 2.7 percent from
a year earlier - were well below a revised target Bolland set in
2012 of 10.8-11.5 billion pounds.
"They're telling the right story in terms of spending coming
down and return of cash to shareholders, but the underlying
trading is no great shakes," said one M&S shareholder.
The general merchandise division has posted eleven
consecutive quarters of underlying sales declines. Profits have
been propped up by 18 straight quarters of growth at M&S food.
M&S said its general merchandise gross margin would grow by
about 100 basis points in 2014-15 due to a more efficient supply
chain, while its food gross margin was expected to grow by 10-30
basis points as a result of further operational efficiencies.
It forecast a "significant" improvement in the general
merchandise gross margin in the following two years and a
further "step up" beyond that as the benefit of heavy investment
in logistics flows through.
That investment will not, however, include a new
distribution centre at the Thames Gateway, east of London, which
is no longer going ahead, saving M&S 130 million pounds.
Capital spending would fall from 710 million pounds in
2013-14 to 500-550 million pounds in each of the next three
"This gives potential for any excess cash to be returned to
shareholders on a regular basis," said Bolland.
M&S held its dividend at 17 pence and said it was
committed to maintaining a progressive dividend policy with
dividends broadly twice covered by earnings.
"We expected firmer indications on capital repatriation,
(and) a better general merchandise gross margin recovery than
now indicated," said Shiret, maintaining a "neutral" rating on
M&S made an underlying pretax profit of 623 million pounds
in the year to March 29, down 3.9 percent from 2012-13 but ahead
of an analyst consensus forecast of 615 million pounds.
M&S shares were down 4.5 pence at 445.5 pence at 1427 GMT.
May marks a decade since retail tycoon Philip Green proposed
to pay 400 pence a share, or 9.1 billion pounds, for the
retailer, which made a profit of 763 million pounds in 2003-4.
M&S says comparing Green's proposal with the current share
price is unfair given 10 years of dividend payments, a 2004
tender offer and a 2007-08 share buyback. However, Green's camp
argues that, in real terms, M&S's share price is below where it
was in 2004.
($1 = 0.5943 British Pounds)
(Reporting by James Davey; editing by Paul Sandle and Tom