Having succeeded Marc Bolland at the start of April, M&S 'lifer' and CEO Steve Rowe (pictured below) is facing a baptism of fire. News of difficult trading conditions is made all the worse by the that fact that the cost of turning the business around 'will have an adverse effect on profit in the short term'.
No surprise then that shares high street icon Marks & Spencer (MKS) are marked down so heavily, falling 7.9% to 409.80p.
Rowe, who kick-started his career at M&S's Croydon store, sets out the first phase of a strategic plan to turn round the British retail institution's fortunes. Apparently his 'number one priority' is to revive the Clothing & Home part of the business. Previously known as General Merchandise, this area has struggled for years, shedding market share to Primark, Next (NXT), New Look and the supermarkets.
Rowe, who recently shook up M&S's senior management team, plans wholesale changes to product and ranges, the level and type of promotions and will invest in lowering prices in the core clothing business, while continuing to expand the food business, which remains in fine fettle.
To revive its clothing performance, M&S' recent initiatives have included a collaboration with trendy TV presenter Alexa Cheung, though Rowe is determined to pay greater attention to the core M&S customer, a 50-year old female shopper seeking good value essentials for the whole family.
Rowe says M&S will 're-establish our style authority by focusing on wearable, contemporary style and unbeatable wardrobe essentials. Product is key to this. Our customers look to M&S not for fashion trends but for accessible products they can wear with confidence. This will be complemented by a refocus on stylish everyday essentials, which we will continually refresh to ensure they are current and competitive, and underpinned by standout M&S innovation.'
Furthermore, 'quality will remain central to our thinking. Whether buying t-shirts or dresses; socks or suits; vests or school uniform, our customers will recognise that M&S has returned to being famous for unrivalled quality delivered through fabric, fit and finish.'
Rowe's recovery plan accompanies results for the year ended 2 April, which show an 18.5% slump in reported taxable profits to £488.8 million after one-off costs, though underlying profit before tax rose 4.3% to £689.6 million. The full year dividend rises 3.9% to 18.7p and M&S also announces a special dividend of 4.6p (£75 million) for the first half of the 2016/17 year, to be paid in July.
Investors are unimpressed by the deferral of strategic decisions on the International business and the UK store estate until the autumn, as well as Rowe's downbeat profit guidance. 'Overall, we expect the combination of difficult trading conditions, both in the UK and in our International markets, as well as our decision to invest in price and reduce our promotional activity, to have an adverse impact on profit in the short term,' says the CEO. 'However, we're confident our actions will provide us with a more solid base from which to build long term sustainable growth.'
Broker Shore Capital downgrades its FY2017 pre-tax profit estimate from £746 million to £625 million accordingly, a material downwards revision indeed.