M&S seen axing stores at home and abroad as profits slump

Struggling British retailer Marks & Spencer is expected to announce plans next week to shut some stores at home and abroad, with analysts forecasting a slump in first-half profit and another fall in clothing sales.

Steve Rowe, a 26-year company veteran, took over as chief executive in April and has the tough task of reviving the 132-year-old British institution that has fallen out of fashion over the last decade.

So far, his priority has been trying to turn around Marks & Spencer's (M&S) underperforming clothing and homewares business.

But on Tuesday he is expected to outline a rationalization of its international operations and say how the company will make better use of its UK estate of more than 900 stores.

Profit at M&S's overseas business, which contributes about 7 percent to the group total, slumped 40 percent in the 2015-16 fiscal year, mainly due to losses at its own - rather than franchised - stores.

The division comprises 468 stores across 58 international markets, including 194 owned by M&S.

Seeking to cut costs, some of these stores in Western European markets, including France, as well as in China are expected to be ditched by Rowe, according to analysts, as he seeks to return the division to profitable growth by reversing the expansion of his predecessor.

Most don't anticipate radical changes to M&S's UK stores as currently all of them still make some profit. But given the growth of e-commerce, they do expect Rowe to signal a small number of store closures and a desire for a smaller estate over time, as well as plans to correct some badly performing shops through re-locations and new layouts.

LOWERING PRICES

Rowe has pledged to revive M&S's clothing by improving ranges and availability, cutting prices and reducing promotions.

However his plan, outlined in May, came with a warning of a short-term dent to sales and profit, and in July the group reported its worst quarterly clothing sales for a decade.

Shares in M&S have fallen 23 percent this year, hammered by the May profit warning and fears a drop in sterling after Britain's vote to leave the European Union will increase sourcing costs.

For the second quarter to Oct. 1, M&S is expected to report a 3.9 percent fall in sales of clothing and homeware at shops open over a year, according to a company compiled consensus of eight analysts' forecasts. That would be an improvement on the first quarter slump of 8.9 percent.

The food business, which contributes over half of group revenue and about a third of profit, is performing better than clothing and outperforming the wider food market. Analysts are on average forecasting flat second-quarter like-for-like sales. They fell 0.9 percent in the previous quarter.

Analysts on average expect a first-half underlying pretax profit of 216 million pounds ($270 million), down from 284 million pounds a year earlier.

($1 = 0.8006 pounds)

(Editing by Mark Potter)