“The two worst performers in the FTSE 100 so far today are ITV and Marks & Spencer, and there may well be a link between the two,” says Russ Mould, AJ Bell investment director.
“ITV has warned of a slow-down in advertising revenues. After a 2% year-on-year increase in the first half of the year, and a World Cup-driven 10% surge in July, ad revenues fell 6% in August and 2% in September against the same months a year ago. Boss Carolyn McCall is also suggesting that the fourth quarter will fall by 3%, with the key month of December down by 6% to 8%.
“That suggests that major ad spenders are retrenching and one of those may be Marks & Spencer, whose Christmas marketing campaigns in the past have featured everyone from Paddington to Peter Kay.
“In its interims today, the High Street chain announced a 7% increase in pre-tax profit, even though sales fell by 3% in total.
“The £8.4 million earnings uplift came from a small drop in restructuring costs, from £101 million to £97 million, lower interest payments as debt fell and a £36 million drop on day-to-day running costs – including a £7.4m cut to marketing spend.
|
M&S interim results |
|
|
|
|
|
|
£ million |
H1 2018-19 |
H1 2017-18 |
|
Change in £ |
Change in % |
|
|
|
|
|
|
|
|
Sales |
4,966.9 |
5,125.6 |
|
(158.7) |
(3.1%) |
|
|
|
|
|
|
|
|
Cost of goods |
(3,100.8) |
(3,220.2) |
|
(119.4) |
(3.8%) |
|
Gross profit |
1,866.1 |
1,905.4 |
|
(39.3) |
(2.1%) |
|
Gross margin |
60.2% |
59.2% |
|
|
|
|
|
|
|
|
|
|
|
Staff |
(522.1) |
(532.5) |
|
(10.4) |
(2.0%) |
|
Other store costs |
(471.7) |
(493.1) |
|
(21.4) |
(4.4%) |
|
Distribution/warehouses |
(266.2) |
(256.2) |
|
+10.0 |
+3.9% |
|
Marketing |
(70.1) |
(77.5) |
|
(7.4) |
(9.5%) |
|
Central |
(354.3) |
(360.9) |
|
(6.6) |
(1.8%) |
|
Total operating costs |
(1,684.4) |
(1,720.2) |
|
(35.8) |
(2.1%) |
|
|
|
|
|
|
|
|
Operating profit |
165.7 |
165.3 |
|
+0.4 |
+0.0% |
|
Operating margin |
3.3% |
3.2% |
|
|
|
|
|
|
|
|
|
|
|
Finance expense |
(39.0) |
(47.0) |
|
(8.0) |
(17.0%) |
|
|
|
|
|
|
|
|
Pre-tax profit |
126.7 |
118.3 |
|
+8.4 |
+7.1% |
Source: Company accounts
“M&S is also cutting its capital expenditure budget once more. While this helps to steady the ship – particularly by helping to boost cash flow, cut debt and thus support the dividend – it is not a sustainable solution to the company’s long-term problem, which is the gradual decline in like-for-like sales.
“Profits growth that comes from cost-cutting alone is poor-quality growth in that it cannot be maintained forever. Ultimately you run out of costs to cut and have to invest in the business’ competitive position, products and services, or the firm will simply wither over the long term.
“Chairman Archie Norman and chief executive Steve Rowe can therefore take some credit for the hard decisions they have had to make on the cost base but unless they can rejuvenate the top line then M&S’ woes are far from over.
“In the meantime, the company’s cost-cutting programme may be about to cause some collateral damage if ITV’s cautious view for the rest of the year is any guide.”
