Marks and Spencer 2006 Annual Report Download - page 23

21Marks and Spencer Group plc
UK Retail
2006 2005
Revenue (£m) 7,275.0 7,034.7
Operating profit1(£m) 790.1 588.4
Number of stores at year end 408 399
Selling space at year end (m sq ft) 13.1 12.9
1Before exceptional items and asset disposals.
Sales for the 52 weeks ended 1 April 2006 were £7,275.0m,
up 3.4% and up 1.3% on a like-for-like basis. Sales of General
Merchandise remained broadly level, with Clothing sales flat
and Home seeing a 0.8% increase. Foods recorded strong
growth of 7%.
Sales improved as the year progressed, as shown in the
chart below:
In Clothing, better values, better buying, and better styling
resulted in better performance as the year progressed with
sales up 4.4% in the second half. Womenswear benefited from
well-received ranges, including more frequent additions of new
product into stores. ‘Per una’ had another very strong year.
It is now a major brand with wide appeal and strong growth
potential. Menswear successfully rationalised its brands and
extended its Autograph offer. Lingerie benefited from a clearer
offer with five brands, including the new ‘per una’ range. We
restructured our Childrenswear area, where performance was
poor, with the aim of regaining a leading position in this
important market.
Food had a very successful year with sales up 7.0%, up 3.6%
on a like-for-like basis. This performance was driven by our
focus on outstanding quality and innovation, backed by
powerful advertising. We successfully tapped demand for
responsibly sourced, healthy food, not least with our additive-
free ‘Marks & Spencer Cook!’ range. We continue to offer
everyday food of exceptional quality, like ‘Oakham’ chicken, and
customers made us their first choice at key times like Christmas
and Easter. Our stand-alone ‘Simply Food’ format performed
strongly.
UK operating profit before exceptional items and asset disposals
for the 52 weeks to 1 April 2006 was £790.1m, up 34.3% (last
year £588.4m).
The major components of the year-on-year increase in UK Retail
operating profit are shown below:
The growth in operating profit reflects the benefits of the actions
taken last year to improve supplier terms and control stock and
commitment, which have contributed to an increase in the UK
gross margin of 3.6 percentage points to 42.8% (last year
39.2%). UK operating costs of £2,330.4m were up 7.4% on the
year, reflecting the impact of new space and the provision for a
staff bonus of £73m. Excluding the bonus, costs were up 4.1%.
Following the sale of M&S Money to HSBC in November 2004,
we retained an economic interest which benefits the Group in
two ways. The Group receives incentives based on sales
volumes, e.g. new cards, insurance, savings and investments
products. In addition, the Group receives income in the form of
fees equating to 50% of the profits of M&S Money (after a
notional tax charge and after deducting agreed operating and
capital costs). For the year, a net operating profit of £9.6m has
been recorded and is included within the results for UK Retail.
This is a strong franchise and we see exciting opportunities to
drive the business in the future.
UK Retail operating profit
Operating
costs
Operating
profit
2004/05
Markdowns
and other
margin
charges
Operating
profit
2005/06
Income
from
Money
£m
0
200
400
600
800
1,000
588.4
Sales
92.5
Primary
margin
gains
110.3
150.5
9.6
(161.2)
790.1
(10)
(8)
(6)
(4)
(2)
0
2
4
6
8
10
Q1 Q2 Q3 Q4
%
UK Retail like-for-like sales growth by quarter
GM Foods Tot al