UK retailer Marks and Spencer posted a drop in annual profits this morning (19 May) and cut its dividend by a third.
The upmarket grocer saw its annual pre-tax profits for the 52 weeks ended 28 March drop to GBP706.2m (US$1.1bn) from GBP1.13bn in the previous year.
Given the “uncertain” economic outlook, and in order to provide a “stronger foundation for moving forward”, the group cut its dividend to GBP0.15 per share from GBP0.22 in 2008.
M&S also sounded a warning on margins for the year ahead. The raft of bad news sent the retailer’s shares down sharply. M&S shares stood at 313.75p at 09:44 this morning, a fall of 7.5%.
Operating profit before property disposals and exceptional items was also down, dropping 29.4% to GBP768.9m.
Despite the fall in earnings, group sales edged up 0.4% to reach GBP9.1bn. In the UK, sales were down 1.7% and international sales were up 25.9%.
UK like-for-like sales were down 5%, while food was also down, by 5%. Nevertheless, the company said the UK food market remains “highly promotional, price driven” and continues to benefit from significant levels of price inflation.
“Trading for the first seven weeks of the year has been broadly in line with trends experienced in the fourth quarter,” chairman Sir Stuart Rose said. “However, we continue to remain cautious about the outlook for the remainder of the year.”
Earlier this year, M&S announced 1,200 job cuts and plans to close 27 stores in a bid to restructure its business.
However, the group also joined forces with India’s Reliance Retail to acquire 14 franchise stores in the country and draw up plans to open a further ten to 15.
“Our franchise business performed well and remains an integral part of driving our international business,” M&S said. “Fifteen new stores opened in Russia, Ukraine, Turkey, Saudi Arabia, UAE, Thailand and Singapore.”
Looking ahead, M&S warned that its gross margins would fall by “125 to 175 basis points”. The retailer expects to spend GBP400m on capital investment, compared to GBP652m a year earlier.
The group will provide an update on its first-quarter sales for the 2009/10 fiscal year on 1 July.