Marks & Spencer share price rallies even as retailer's profits tumble

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Credit Suisse has predicted a 4.5% decline in pre-tax profit to £539mln in fiscal year 2018/19, driven by weak like-for-like sales but with less pressure from foreign exchange headwinds.

Britain's Marks & Spencer (MKS.L) said it needed to modernise urgently to survive after a second straight annual profit fall and a 321 million pound ($429 million) charge for a major store closure programme. In addition, M&S reported strong cash generation, even after restructuring costs reduced net debt by 107.2 million pounds, enabling the group to maintain a full year dividend of 18.7p.

According to reports, M&S will announce which of its 140-strong full-store network will close on Wednesday UK time, adding to the 20 already shuttered.

M&S lost more ground in its fourth quarter, with like-for-like clothing and home sales down 3.4 percent, worse than the previous quarter's 2.8 percent drop, and same store food sales down 0.6 percent, against a third quarter fall of 0.4 percent.

They added: "Other key areas of focus are likely to be the performance of the new Robinson's range extension, an update on the progress of the USA multi-pack Fruit Shoot penetration, the implications for H2 margins (if any) in light of recent moves in input costs, namely PET, aluminium and sugar and finally its view of the consolidation in the United Kingdom grocery retail market". This was partially offset by efficiencies and lower incentive costs.

Steve Rowe, an M&S lifer who has been CEO for two years, said the firm was taking steps to fix the structural issues. "Accelerated change is the only option", M&S said in a statement.

M&S said that although online sales are growing, its online capability is "behind the best of our competitors and our website is too slow". Whilst the fulfilment centre at Castle Donington has struggled to cope with peak demand and some of its systems are dated. "In both businesses we need to revitalise our ranges and reassert our reputation for value for money".

M&S is to close 100 stores, amounting to one in three of its core clothing and home branches, over the next four years.

United Kingdom costs are set to decrease by up to 1%, while capital expenditure is expected to total between GBP350 million to GBP400 million. Food gross margin is expected to decrease by as much as 50 basis points.

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