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Nov 4, 2020
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M&S feels the chill as Covid drives it to historic first-time loss

Nov 4, 2020

Analysts who predicted a first ever half-year loss for M&S were on target and on Wednesday the retail giant reported an adjusted loss before tax of £17.4m, down from a profit of £176.3m a year ago. The statutory loss before tax of £87.6m was down from a £158.8m profit last time. That was towards the bleaker end of analysts’ predictions.

Photo: Sandra Halliday

But in the half-year to 26 September, the retailer declared that it had turned in a "robust performance in unprecedented times as [its] transformation accelerates”.

So what actually happened in the period? On the plus side, the company called out the fact that its Clothing & Home (C&H) sales managed an “improving performance” after the spring lockdown and also rose 34.3% online. It said its market share grew, and it highlighted the strong sell-through of surplus stock.

But there was plenty of bad news too as the company reported total group revenue down 15.8% to £4.09bn and International revenue fell 25.5%. It saw a C&H revenue decline of 61.5% in Q1 and 21.3% in Q2 for an H1 total of a 40.8% fall. C&H recorded an operating loss before adjusting items of £107.5m.

The company was able to keep it shops open due to its Food offer and in this area it saw adjusted operating profit up 19%. Its investment in Ocado also helped it as Ocado Retail revenue rose 47.9% and the unit became more profitable.

But the C&H performance was heavily dented by the lockdown and the increase online only partially made up for this, although e-tail was notable for an increased conversion rate and lower returns.

Overall for C&H, the company said that “the business is emerging well ahead of the Covid-19 scenario both in sales and stock position and there are signs that new range structures can drive sales”.


After stores reopened in Q2, the business still had “substantial headwinds” to deal with in the form of a store estate generating two-thirds of sales in high streets, shopping centres and town centres.

Destination stores in city centres and shopping centres underperformed, but retail parks, outlets and clothing lines sold within Simply Food stores outperformed the average.

It also had to cope with a product mix in which formal, outerwear and event-related categories accounted for around a quarter of sales last year.

This time, the company saw a big category shift with casual clothing, kids, lingerie and home strongly outperforming formal, holiday, shoes and outerwear, with the variance particularly marked online.  

M&S expects some of the changes in mix to continue into the future “as working life and the use of offices changes, but post-Covid, there will also be a recovery in demand for occasion and formalwear as events return”.


As mentioned, the company is speeding up its transformation program with a “far-reaching re-engineering” of C&H.

Its launch of the MS2 unit with C&H creates an integrated global digital, data and online business division “with operating flexibility to compete with pureplay competition and develop our growing portfolio of guest brands”.

Over three years, its ambition is to achieve an online sales mix of at least 40%.

Also as part of its transformation, it’s radically adjusting its product mix to focus more on fast-moving Iines and on “trusted value” pricing while cutting back on discounts. It’s introducing efficiencies into its supply chain too.

But the company is still faced with “significant uncertainty regarding the near-term outlook in relation to both Covid and Brexit”.  

Trading in the first four weeks of H2 has continued at similar rates to the end of Q2, with Food revenue up 3%, C&H revenue down 21.5% and International revenue up 7.4% due to the timing of shipments.

Although trading “strongly”, the business is entering a period of new Covid-related restrictions that will impact C&H profit as store sales are significantly reduced, albeit offset by increased online sales and reduced costs supported by furlough income. 

Prior to this, its planning assumption for the balance of H2 in C&H was for similar sales trends to the first few weeks of H2. And while it gave no  new assumption figures it said it “enters this period with C&H stock levels down by more than £100m on last year and with less stock hibernated to next spring than previously envisaged”. 

CEO Steve Rowe said of all this: "In a year when it has become impossible to forecast with any degree of accuracy, our performance has been much more robust than at first seemed possible. Out of adversity comes opportunity and, through our Never the Same Again programme, we have brought forward three years change in one to become a leaner, faster and more digital business. We are taking the right actions to come through the crisis stronger and set up to win in the new world.”

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