March 20, 2020 / 7:50 AM / 20 days ago

Britain's M&S warns of severe impact from coronavirus

LONDON (Reuters) - British retailer Marks & Spencer (MKS.L) warned on Friday trading over the next 9-12 months in its clothing, homewares and international businesses was likely to be “severely impacted” by the coronavirus pandemic.

FILE PHOTO: A man leaves a Marks & Spencer store in London, Britain, in this January 7, 2016 file photo. REUTERS/Toby Melville

To save cash, the group will not pay a final dividend for its 2019-20 financial year, and it said it was unable to provide meaningful guidance on earnings for 2020-21. However, it added the post-crisis future of the business was strong.

“M&S has served customers without cease through two world wars, terrorist bombings and numerous local disasters and we are determined to support our customers now as we always do,” the 136-year-old group said.

“While there are many uncertainties, we expect to come through this period in a strengthened competitive position.”

Shares in M&S were down 5.3% at 0829 GMT, taking losses for 2020 so far to 49%.

The group said it was seeing substantial sales declines in its clothing and home business and has had to manage costs accordingly, but expected to be able to redeploy significant numbers of staff to support its food business, where trading has so far remained strong. Some 4,600 have already been redeployed.

M&S is planning on the basis of a “prolonged downturn” in demand for clothing and homewares, and preparing for the contingency that 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 (OCDO.L) joint venture should provide more resilience than some single sector businesses,” it said.

DEFER SUPPLY

With margins likely to be severely impacted by the surplus of unsold seasonal clothing stock and probable clearance activity in the wider market, M&S said it was taking all possible steps to defer supply.

The firm is reducing its clothing supply pipeline by over 100 million pounds ($118 million), postponing capital commitments, deferring or cancelling discretionary spend and deferring all pay increases. Not paying a final dividend will save it 130 million pounds ($154 million).

M&S said pretax profit before one off items for the 2019-20 year could be at or below the bottom end of the analysts’ forecast range of 440-460 million pounds ($516-$540 million), given probable very depressed trading in clothing and home.

The firm said it had total available liquidity of 1.34 billion pounds.

Separately on Friday, sporting goods retailer Frasers Group (FRAS.L), formerly Sports Direct, warned it would not meet earnings guidance for 2019-20 as the coronavirus would cause significant disruption to its business.

Reporting by James Davey; editing by Kate Holton and Mark Potter

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