Marks and Spencer Is the Premier Retailer in the UK - Case Study Example

Marks and Spencer’s well-established business attracts a great deal of consumer base irrespective of demography. The primary business of the company comprises selling general merchandise which mainly consists of womenswear. Menswear and expanding kids' wear. The company, through its resilient and effective marketing tactics, has been able to capture a market share of around 11.0% by value and 11.2% by volume. Another source from where the company earns a great deal of its revenue is through selling food items. Marks and Spencer is the leading provider when it comes to selling fine-quality food. The company sells everything from fresh meals to canned food items, a highly acclaimed and praised range of wines to other groceries products. The company has improved its shelf availability and has adopted the strategy of renewing its food range. The proactive approach has resulted in an increase of 1.8% in sales revenue from the food business.

The financial year 2011 proved to be another progressive year for Marks and Spencer. During the current year, Marks and Spencer’s revenue increased by 2% during the current year to an impressive £9.7 billion. Although, due to an increase in expenditure owing to expansion plans of the company, the operating profit decreased by 2%. The company, following its growth strategy, aspires to transform its operation into a multi-channel business. The company has taken major steps in investing in its direct sales business which enhanced the revenue during the current financial year. In addition, the company is actively following its strategy of refurbishing its stores and giving them a new and improved look. The refurbishment has resulted in increased storage space and has created a fashionable shopping environment.
The following table compares the financial results of Marks and Spencer, for the last five financial years.

As quite evident from the above comparison, the financial outlook of the company has improved. The increase in group revenue primarily pertains to the increase in like-for-like sales as well as the addition of new stores and outlets, both in and outside of England. Since Marks and Spencer do a significant number of its sales overseas, the company’s revenue is majorly increased due to the fluctuation in the exchange rate. Although the recent credit crisis and global economic meltdown proved to be a hurdle, but the impact was offset by prudent risk management and apt allocation of capital investment. The gross profit to sales ratio for the year ended December 31, 2011, was 8.93% which has decreased by 0.67% during the current year. Despite the decrease in gross profit to sales ratio, the net profit of the company has increased by £16.2 million. The increase in net profit is because, during the current year, the company did not spend any exceptional cost which it incurred during the prior year on strategic restructuring. In addition, the company took strong measures to control its financial cost during the current year and curtailed it by £66 million.

Gearing explains whether the company is majorly financed through capital raised by issuing shares, which is termed equity financing, or through debts from financial institutions. The gearing ratios measure the ability of the entity to repay its debts in the future. The debt-equity ratio highlights the fact that the company is majorly financed through debt financing obtained in the form of financing facilities obtained from various financial institutions. However, the company has been able to limit its borrowing which is represented by the decrease in the borrowing ratio during the current financial year. The ratio is quite similar to the debt-equity ratio except it only highlights the debt on which the company has to bear costs in the form of finance charges. The fact can also be observed from the income statement of Marks and Spencer according to which the financial cost has been reduced by £66 million during the current year.

Marks and Spencer are opening more and more outlets every year and is majorly increasing its customer base. From a core financial perspective, the company assets are increasing and the ratios such as return on asset, profit margin, etc. show that not only the company is working effectively in increasing its asset base, but also it is deploying them in such a manner that they are generating massive returns. The historic share price pattern also shows that the company has been able to withstand the global financial crisis and its share price remained stable. Currently, the share price of the company is at its all-time high which represents shareholders' confidence. Read More