(Bloomberg) — Marks & Spencer Group Plc warned that the cost-of-living crisis and a full exit from Russia will prevent its profit from rising this year.
Sales growth will slow due to the squeeze on shoppers from the higher cost of living, the company said Wednesday. Revenue rose at the fastest rate in at least a decade in the year through April 2.
“Given the increasing cost pressures and consumer uncertainty, we do not currently expect to progress from this lower profit base,” the company said Wednesday.
Chief Executive Officer Steve Rowe is handing over to new CEO Stuart Machin and co-CEO Katie Bickerstaffe, who will have to navigate the cost-of-living crisis and steer the food and clothing retailer’s turnaround efforts after more than a decade of attempts to jumpstart the business. Their biggest tasks will be to tackle M&S’s expensive store portfolio, boost online sales and stay competitive in clothing after being dismissed as old-fashioned, ill-fitting and pricey.
Ocado Group Plc’s e-commerce joint venture with M&S issued a profit warning Wednesday, cutting its sales growth target for the full year to low single digits, down from around 10% previously and mid-teens before that.
M&S is taking a £31 million ($38.9 million) charge as it ends its franchise in Russia, which contributed £5.2 million pounds to earnings last year. This year M&S won’t get UK business tax relief and results will exclude Russia, the retailer said.
M&S, a stalwart of the British high street, suspended shipments to its franchisee in Russia in March after the outbreak of war in Ukraine, but Fiba Group kept open the 48 M&S stores it operates in the country. The decision to fully exit the Russian franchise ends the public-relations headache for M&S as it was criticized for holding onto ties to the country after many companies had exited.
A household brand with hundreds of stores across the nation, M&S’s successive management teams have repeatedly failed to return the chain to prior levels of annual profit. M&S shares have lost two-thirds of their value since Rowe took over in 2016. The stock was little changed Wednesday.
Rowe’s departure is the end of an era for the executive who has worked his way up from working weekends at retailer when he was 15. Under his leadership with Chairman Archie Norman, M&S has focused on cutting costs, streamlining the store portfolio, investing in online sales, expanding the food business, and improving the range, design and pricing of apparel. They’ve also been trying to reduce the retailer’s reliance on sales promotions.
M&S’s international business ran into other difficulties last year as well with the retailer closing 11 of its franchise stores in France and removing fresh and chilled products from stores in Czech Republic due to supply difficulties after Brexit.
Machin, who already leads M&S’s food business, will take responsibility for day-to-day leadership of the company as part of the company’s new management team. Bickerstaffe, currently joint chief operating officer, will continue with her existing responsibilities including clothing and home, plus online operations and data.
The new leadership structure, designed by Norman, is seen as promoting both of the top candidates to succeed Rowe. Among the changes, Chief Financial Officer Eoin Tonge has been given an added role of chief strategy officer.
Some are skeptical of the plan because it may encourage turf battles.
“It looks to me like it’s going to be a problematic arrangement,” said Tony Shiret, an analyst at Panmure Gordon.
(Updates with details throughout)
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