Marks & Spencer’s share price is down over 8% today heading towards the market’s close. The fall came after the iconic British food, clothes and home products retailer posted a 9.9% drop in its annual adjusted pre-tax profits, down £523.2 million. Revenues also slid 3% to £10.4 billion.
Both food and clothes and home revenues were down over the year, by 2.3% and 1.6% respectively. M&S has had notable success with its food sales in recent years, which have benefited from an accent of high quality ready meals and lunch items such as sandwiches and salads rather than trying to compete with bigger supermarkets like Asda and Sainsbury’s on staples. However, despite the success of M&S’s food courts, they have not proven immune to the wider troubles on the UK high street.
Much faith is being placed in a new joint venture with Ocado, who will start to work exclusively with M&S products once its current partnership with Waitrose ends. Ocado has been delivering Waitrose products since it was founded twenty years ago. M&S’s rival in the upmarket groceries segment will now continue to develop its own online offering together with Today Development Partners (TDP), set up by Jonathan Faiman, one of Ocado’s original co-founders.
In order to fund the agreed £750 million stake in its new joint venture with Ocado, M&S has announced a £600 million cash-call. It will sell shares through a ‘one-for-five’ rights issue at 185p a share. That’s a massive 32% discount on yesterday’s closing share price and can be in large part credited for today’s Marks and Spencer share price slump.
M&S has already spent most of the past 10 years trying to turn around a business that still has huge legacy issues to contend with despite also having made much progress over that period. CEO Steve Rowe’s statement today read:
“We are deep into the first phase of our transformation programme and continue to make good progress restoring the basics and fixing many of the legacy issues we face”.
“As I have said, at this stage we are judging ourselves as much by the pace of change as by the trading outcomes and change will accelerate in the year ahead. Whilst there are green shoots, we have not been consistent in our delivery in a number of areas of the business.”