Marks & Spencer expecting severe disruption due to coronavirus

Marks &Spencer has today announced that the ongoing coronavirus (COVID-19) outbreak will have a severe impact on the ‘Clothing & Home’ and ‘International’ parts of the businesses over the next 12 months.

Trading in the food business has been strong has continued to be strong, however, overall the group said it is unable to provide “meaningful” guidance on future earnings.

The M&S board does not anticipate paying a final dividend this year. The shares fell 4.7% following the announcement.

Steve Rowe, Chief Executive of M&S, said: “We delivered an improved performance in Q3 across both main businesses. The Food business continued to outperform the market and Clothing and Home had a strong start to the quarter, albeit this was followed by a challenging trading environment in the lead up to Christmas.

“As we drive a faster pace of change, disappointing one-off issues – notably waste and supply chain in the Food business, the shape of buy in Menswear and performance in our Gifting categories – held us back from delivering a stronger result. However, the changes we made earlier in the year in Clothing have arrested the worst of the issues of the first six months and we are progressively building a much stronger team for the future.”

---

Industry reaction

Sophie Lund-Yates, Equity Analyst at Hargreaves Lansdown

COVID-19 has the potential to derail M&S’ Clothing & Home division for many months. These are uncertain times for retailers, but this is going to be a particular challenge for M&S as the Clothing & Home business has been struggling for a while. With lockdowns and closures disrupting trading in its international markets too, the pandemic situation is likely to really hurt the group’s top line. That will then feed down to weaker margins. If less stock is shifted and the group’s left with piles of inventory it will need to slash prices in order to sell it at a later date.

On the plus side M&S has a bit of protection because its clothing offering is less seasonal. As a place we go to for core wardrobe items, rather than throw away fashion, sales could be slightly more defensive than other players. That probably won’t offer enough mitigation to offset the sharp decline in footfall that’s expected though.

The food business is faring better. At the moment food hasn’t seen the major uplift as other supermarkets because of M&S’ bigger focus on fresh food. However, as more of us are forced to stay at home sales should continue to benefit from the group’s strong offering of home-dining options. The pandemic also means the joint venture with Ocado has come at an interesting time. From the Autumn M&S items will be available online, which could allow it to benefit from a shift to online shopping. Demand for Ocado has been so strong in recent days it was forced to take its app offline. All-in-all there are simply too many unknowns to predict what will happen. In our view M&S faces some very real challenges, but also opportunity, in the months ahead.