Shares in the Marks & Spencer retailing group dived a further 52p to 397p yesterday on a warning of sharply lower full-year profits following much worse-than-expected interim results accompanied by a miserable 2.8 per cent increase in the six-month dividend.
First half profits collapsed £104 million sterling to £348 million in the six months to September, the first profit setback for seven years, due to sharply lower overseas profits, the cost of major expansion and the decline in British consumer confidence.
Operating profits earned on European activities - including the group's stores in the Republic of Ireland - collapsed by £10 million to only £2 million on turnover down £6 million at £242 million, despite more sales space.
Chairman Sir Richard Greenbury warned that second-half trading had continued to be "very difficult" and that the first-half profit setback was not expected to be reversed in the second half.
The profit warning was immediately interpreted as indicating a potential 25 per cent fall in full year profits to barely £850 million compared with City predictions of profits above £1.1 billion less than six months ago.
Remedial action to stem the huge squeeze on profitability are to include a £300 million reduction in British capital spending, slower expansion in Europe and a sharper focus on providing better value for money and increasing stock flows through stores.
The extraordinary about-turn in M&S's fortunes mirrors the rapid change in prospects for the British economy, mainly prompted by the onset of the global financial and economic crisis over the summer months. Sir Richard said British sales were good during April and May, but fell back in June and July "and the trading environment has now deteriorated further".
The interim figures detail an £80 million decline in British operating profits to £316 million on turnover up only 2 per cent to £3.4 billion despite substantial expansion in sales space. Overseas, the group suffered from the strength of sterling, particularly in Europe and Ireland, and a continuing decline in Far East sales.
After debiting pre-opening costs, European activities moved from £9.4 million profits to £5.3 million losses.
Sir Richard indicated that the collapse in European profitability was mainly due to the strength of sterling which had previously been cushioned by hedging transactions on the currency markets. "Local trading conditions have remained difficult and we have not been able to offset the currency impact through sustainable higher prices," said Sir Richard commenting on the European figures.
