The Marks and Spencer Group Plc (LON:MKS) (MKS.L) share price has fallen by around 4% today after the company released half year results. In my view, they show that it is making some progress with the delivery of its refreshed strategy, but its financial performance has been relatively mixed.
Revenue decreased by 3.1%, with profit before tax rising by 2% due to the phasing of costs. Clothing & Home revenue was down by 2.7%, with it being impacted by store closures. Like-for-like sales in Clothing & Home were down 1.1%, with Online Clothing sales growth ahead of the market, although gross margin fell by 20 basis points as a result of sale timing.
In Food, revenue was down 0.2%, with LFL revenue falling by 2.9%. This was due to tough trading conditions, as well as actions to restore trusted value. This included fewer promotions and price investment, with gross margin down 25 basis points as a result.
Marks and Spencer continues to target at least £350 million of cost savings by 2021. It is also in the process of reengineering its end-to-end supply chain, while also removing complexity and reducing costs. It is seeking to become more competitive in the digital space, with 20.4% of UK Clothing & Home sales now online. The closure programme of over 100 full-line stores is generating encouraging transfer rates, with further change required.
In my view, Marks and Spencer is making good progress with its turnaround plan. I feel there is a long way to go, and its financial performance may disappoint relative to some of its sector peers in the short term. However, a focus on becoming a more efficient omnichannel retailer with a stronger supply chain could lead to improving profitability in the long run.
Therefore, I’m optimistic about the company’s long-term share price growth potential. Although I feel that there could be further difficulties ahead as it seeks to make fundamental changes to its business, I believe that it has the right strategy to boost its performance in future years.