Marks & Spencer scraps dividend, warns on profits amid Covid-19

Retailer Marks & Spencer scrapped its dividend on Friday as it warned on profits and said trading in its clothing, home and international businesses is likely to be "several impacted" by Covid-19 in the next nine to 12 months.

As a result, the company said it would not be possible to provide any meaningful guidance on future earnings.

M&S said group pre-tax profit for the year could be at or below the bottom end of the range of between £440m and £460m, "given probable very depressed trading in clothing and home". In addition, it is not expecting to make a final dividend payment for the current year, which would result in a saving of about £130m. It will review the policy as visibility improves.

The group said it expects its food business to trade profitably throughout. "At this stage we have benefited on a small scale as customers stock up but our heavy bias to chilled and fresh means we are not seeing the forward buying uplift experienced by the major grocers," it said.

It said the shift to eating at home should, however, continue to benefit sales in the coming months. It added that any supply interruptions were not expected to be prolonged or financially material.

As far the international segment is concerned, Marks said it expects "significant" reductions in sales as many other markets in which it trades are hit by local outbreaks and in some cases lockdowns and closures.

"We further anticipate some additional Brexit related costs impacting our French and Irish businesses starting at the end of the year," it said.

Sophie Lund-Yates, equity analyst at Hargreaves Lansdown, said: "These are uncertain times for retailers, but this is going to be a particular challenge for M&S as the clothing & home business has been struggling for a while. With lockdowns and closures disrupting trading in its international markets too, the pandemic situation is likely to really hurt the group’s top line. That will then feed down to weaker margins. If less stock is shifted and the group’s left with piles of inventory it will need to slash prices in order to sell it at a later date.

"On the plus side M&S has a bit of protection because its clothing offering is less seasonal. As a place we go to for core wardrobe items, rather than throw away fashion, sales could be slightly more defensive than other players. That probably won’t offer enough mitigation to offset the sharp decline in footfall that’s expected though."