LONDON — Stuart Rose, chairman of Marks & Spencer plc, has shaken up the management and taken over the retailing, buying and merchandising operations at the troubled retailer, which on Tuesday reported a 40 percent drop in first-half profits to 140.1 million pounds, or $254.3 million, from 234.4 million pounds, or $425.5 million.
During the 26 weeks to Oct. 2, U.K. retail sales dropped 0.4 percent to 3.31 billion pounds, or $6.01 billion, from 3.32 billion pounds, or $6.03 billion, due mainly to the poor performance of women’s wear. Dollar figures are converted at the average exchange rate.
Worse yet, trading isn’t getting any better. Indeed, financial markets had expected M&S to release a profit warning on Tuesday, which the retailer did not do.
“Trading has become more difficult since we last updated on Oct. 12,” the M&S statement said. “We do not believe this trend to be entirely M&S-specific. With Christmas, we still have our two key profit-driving months ahead. It is therefore too early for us to predict the outcome of the second half at this stage.”
Rose, the U.K. retailing pro who arrived at M&S in June to defend it from a takeover bid from Philip Green, axed a series of executives — including M&S veterans Maurice Helfgott, who had replaced Vittorio Radice as director of men’s wear, children’s wear and home, and finance director Alison Reed.
“If we are to succeed, we need to change how M&S is led and how it operates,” Rose said in a statement. “I will take direct responsibility for retailing merchandising and buying. Charles Wilson will be responsible for our systems, logistics and property. We will be seeking a new finance director.”
He added that M&S needs to “completely refocus” on the customer. “We can buy better, market better, present our stores better and improve the speed and efficiency of our supply chain. The brand is strong and relevant.”
Helfgott will not be replaced, although Rose has named Andrew Skinner director of men’s wear, Fiona Holmes director of children’s wear and Steve Rowe interim director of home.
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Wilson, as reported, is one of Rose’s longtime lieutenants and joined M&S with him over the summer. Rose’s other right-hand man, Steven Sharp, will continue to be responsible for marketing.
Rose has also streamlined the M&S board, reducing the executive directors from six to three: Rose, Wilson and the future finance director.
During the first half, turnover rose 0.9 percent to 3.82 billion pounds, or $6.93 billion, from 3.79 billion pounds, or $6.88 billion, thanks chiefly to M&S’s international business, which increased 9.3 percent to 321 million pounds, or $582.7 million, from 316 million pounds, or $573.6 million.
U.K. retail sales suffered from soggy October weather and a considerable drop in home sales as M&S transitions from the Lifestore concept to a more back-to-basics approach to home.
“In clothing, women’s wear generally had a disappointing half with a poor summer season, and despite an initial encouraging start to autumn in knitwear and formal wear, we failed to sustain momentum to the end of the half,” the statement said.
Extraordinary charges of 81 million pounds, or $147 million, dented profits in the period. As reported, those charges include the closure of Lifestore, the M&S home concept spearheaded by Radice, head office relocation and restructuring and defense costs from the takeover attempt.
Rose also outlined some of his operating goals for the coming year. They include 320 million pounds, or $592 million, of cost and margin improvements by 2006-2007; reduced stock commitments; an improved supply chain; reduced product proliferation, and improved real choice.
Rose also said during a conference call Tuesday that M&S would be moving into new lines including maternity wear and new ranges for petite and larger women. This strategy mimics that of other High Street retailers, including Topshop and Asda, which have both expanded their size and style offerings.
Richard Ratner, head of equities at Seymour Pierce in London, said Rose has no doubt shaken up M&S.
“However, as the current trading statement says, it hasn’t had any effect on sales. The problem is that after four quarters in a row when like-for-like sales were down, if anecdotal evidence is correct, M&S is still trading worse than its competitors — and it shouldn’t be.”
Rupert Trotter, an analyst at Isis Asset Management, said: “It’s all about implementation now at M&S. If you’re bullish on the stock then you have to go quite a bit on trust right now.” As for Rose’s management changes, Trotter said, “He is taking responsibility for the business, and he is motivating the people inside.”
As expected, M&S also announced that it has completed the sale of M&S Money, its financial services arm, to HSBC for 762 million pounds, or $1.41 billion. As part of the deal with HSBC, M&S will receive fees equating to 50 percent of the profits of M&S Money, plus payments in relation to sales growth.