High street darling Marks & Spencer saw its profits tumble 40% last year as the credit crunch kept consumers away from the shops.
The company has slashed its dividend by a third as a result of the recession eating into its profits; its final dividend will be just 9.5p a share – down 33.1% – and is the first such cut since 2000.
Profits at the clothing, homewear and food retailer were £604.4 million in 2008, down from £1,007 million the previous year. Chairman Sir Stuart Rose blames continuing economic uncertainty, and says the divident cut was necessary to provide “a stronger foundation moving forward”.
There will also be a reduction in next year’s interim payout to 5.5p bring the total payout to 15p a share from 22.5p. Sir Stuart says that going forward the company wants to have its payments covered by two times earnings after which dividends will be increased in line with earnings per share.
He adds: "[Making such a move was not] an easy decision but frankly its common sense.”
Perhaps of more concern is the fact that the company is yet to see any green shoots, with trading in the first seven weeks of this year at the same level as seen in the final three months of 2008. Sir Stuart admits: “We continue to remain cautious about the outlook for the remainder of the year.”
Margins are expected to fall this year though the company is plans to trim costs by 1%.
M&S saw UK in-store sales fall by 5.9% last year, with the company suffering from the effects of competition from cheaper rivals in both food and clothing. However, overall sales rose by 0.4% to £9.1 billion thanks to new openings and the internet.
M&S admits that 2008 was “a challenging year” for its all important womenswear division, but adds the children’s clothing operation did well, growing its market share from 4.8% to 5.4%. Food also had a difficult year, with sales down 5% and its market share down to 3.9% - however Sir Stuart says this rate of decline had now been stemmed.
To divert attention away from a difficult set of results, Sir Stuart has unveiled a reshuffle with Kate Bostock, previously head of fashion, taking control of the complete general merchandising operation including homewares.
At the same time, the international chief Carl Leaver - previously viewed by many as a possible successor to Sir Stuart - is departing by "mutual consent”. M&S has found the international marketplace tough, with Sir Stuart admitting supply chain failures at its first branch in mainland China.
A new 'doing the right thing' project has now been launched to improve operational execution, boost the international business and improve the online offering. It also aims to give a shot in the arm to 'brand communication' with customers, which should highlight the company’s ethical and sustainability objectives.
However, analysts express some skepticism, preferring to wait until there is evidence of a real improvement in sales and profit.
Tomorrow the company will offer a range of 20 products for a penny each in 300 stores, harking back to its roots as a penny bazaar.