More of the same from Marks & Spencer as profits disappoint again

It was more of the same from Marks & Spencer (LSE: MKS) today, as it announced its third straight year of profit falls. Underlying profits before tax fell by 3.9% to £623m in the 12 months to 29 March.

The figures are broadly in line with City expectations – analysts had forecast profits of between £600m and £630m – but that hasn’t stopped the stock taking a hit today. The price is down 2.9% to 438p.

In a story that will sound very familiar to investors, the venerable retailer’s figures have once again been dented by a poor performance in its general merchandise business – which includes clothing.

Like for like sales across the group rose by just 0.2%, but general merchandise fell by 1.4%. M&S blamed “unseasonal conditions” and “high level of promotional activity” – price cutting – for the drop in clothes sales.

However, there are glimmers of hope. For the first time in three years, the company said, clothing “returned to growth” in the last quarter of the year.

Online also offers hope for clothing sales. Sales at a revamped M&S.com rose by 23% last year. The website accounted for 16% of general merchandise sales this year, compared with 13% the previous year.

Once again, the company has been saved by its performance in food sales. Total sales rose by 4.2%, and like-for-like sales grew by 1.7% – the 18th consecutive quarter of growth.

And while other food retailers suffer from price cutting and competition from the likes of Aldi and Lidl, Marks & Spencer is refusing to “join the race to the bottom on price”. It’s a strategy that, for now at least, seems to be paying off.

Overseas, sales rose by 6.2% to £1.15bn, as the company opened 55 new stores. Sales rose by 15.7% in Asia, and by 3.9% in Europe.

M&S shares are currently trading on a price/earnings ratio of around 15 times.

We said two years ago M&S was “still worth buying” – if they could sort out their clothing sales. That’s still to happen.

And earlier this year, Ed Bowsher said there was “no way” he’d buy the shares at the then price of 459p, because of its ongoing problems with its womenswear. Today’s price is lower, it’s true, but with clothing still not performing, is it low enough?

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