'Unacceptable' clothing sales cause fresh M&S profits slide

Marks & Spencer announced its third consecutive fall in annual profits yesterday alongside plans to move out of its landmark head office building in Baker Street, London, in two years' time.

Marks & Spencer announced its third consecutive fall in annual profits yesterday alongside plans to move out of its landmark head office building in Baker Street, London, in two years' time.

M&S plans to move to a new building in nearby Paddington Basin in mid-2003. However, the new office will have room for only 2,000 staff rather than the 3,200 who work at the current headquarters.

Luc Vandevelde, chairman and chief executive, said the new building was "smaller, cheaper and more adaptable" than Baker Street with its labyrinthine corridors and carpet shades which are graded according to the seniority of management.

The announcement came as M&S reported further falls in its clothing sales as shoppers continue to desert its stores in droves. Total sales of clothing footwear and gifts in the 52 weeks to 31 March were 5.5 per cent down on the previous year. Analysts said like-for-like sales in the key clothing division were down by around 7 to 8 per cent.

Mr Vandevelde described sales of adults' clothing as "unacceptable". The company said its share of the UK clothing market now stood at 11 to 12 per cent compared with 14 per cent at its peak. The company added that its share in the 16 to 35-year-old age group had halved from 12 per cent to 6 per cent since 1996.

Mr Vandevelde, who joined the company in February 2000, appeared to perform a climbdown on his original promise of delivering a "meaningful turnaround" in Marks & Spencer's fortunes within two years.

With only eight months to go before his self-imposed deadline, Mr Vandevelde said: "It would be fair to say that the recovery in the first year has not been as rapid and intense as we would have hoped. By this time next year we would hope to see pockets of success."

Asked whether this would include like-for-like sales edging into positive territory, he said: "The honest answer is I don't know."

Mr Vandevelde was speaking as M&S reported full-year profits of £480m, before exceptional items, compared with £517m the previous year. Pre-tax profits were just £145.5m after £335m of exceptional charges related to M&S's plans, announced in March, to close its loss-making business in continental Europe, axe its Direct clothing catalogue and close six smaller stores.

Though clothing sales were down, sales of home furnishings rose by 11.5 per cent on the previous year, with foods up by 3.7 per cent, or 2.6 per cent on an underlying basis.

Three non-executive directors of M&S are set to step down at the company's annual meeting in July. They are Sir Michael Perry, Sir Ralph Robins and Sir David Sieff. Sir David is the last of the Marks & Spencer family members to sit on the board.

M&S said that two more non-executive directors would be named shortly. Stella Rimington, the former MI5 chief, whose handling of Mr Vandevelde's bonus was criticised earlier this year, will remain on the board.

M&S shares rose 1.5p to 259.5p though many analysts were lukewarm on the results. Nick Bubb at SG Securities said: "There's still no top line growth and they are not denying that clothing is down [in current trading]. They've got to get clothing right."

Another said: "There's plenty of talk about where they want to be but nothing on how they are going to get there."