M&S has revealed a slump in full-year profits and new CEO, Steve Rowe, has warned this could continue as turnaround plans will affect profits going forward.

Pre-tax profits for the financial year ending 2 April were down 18.5% to £488.8 million, but underlying profits grew 4.3% to £686.6 million, driven by sales growth of 2.4% to £10.6 billion.

The retailer said it was operating in difficult and challenging times, thanks to a dip in consumer confidence, flat clothing market, deflation in food and the slowing of online. "Our customers are changing too as they become increasingly style and health conscious, shop around and expect more," it said.

"M&S is a great business with a strong customer base and loyal employees and we have much to be proud of. We also know that we have lots of opportunities to improve and be better for our customers, our employees and our shareholders. We are putting customers right at the heart of our business," insisted CEO, Steve Rowe.

"Our results last year were mixed. We continued to outperform on food but we underperformed on clothing and home sales. This is not satisfactory and today we are outlining our initial plans to address the issues and to position Marks & Spencer to deliver profitable sales growth."

Honor Westnedge, lead analyst at Verdict Retail, added: "We welcome the announcement that Rowe is willing to take a short term hit on profitability in an effort to restore turnover growth, an essential action, which his predecessor, Marc Bolland, was unprepared to implement. Investment in price, product quality, availability and customer service is a message we have heard before from M&S, but the sacrifice of profitability signals a stronger commitment this time round."

Online

While the retailer stated its online sales have slowed, it still reported a 23.4% increase year-on-year.

"We will also continue to develop and improve our digital channels so that we stay up-to-date and relevant and can respond intuitively online and on mobile," explained the retailer, which said it has grown ahead of the market to become the second largest online UK clothing retailer.

In fact, 7.4 million customers shopped at M&S.com over the last 12 months – the highest number to date. Meanwhile, mobile is the fastest growing sales channel and the retailer ensures its content is updated daily.

Analyst, Nick Bubb, commented in his Daily Retailer newsletter, that Rowe's decision to let immediate profits take a hit for the future health of the business was sensible.

"But the plan is based on the assumption that nothing goes wrong with the strong side of the UK business, ie the Food operation, even though LFL sales growth has already ground to a halt and M&S is adding even more 'Simply Food' store space," he said. "And M&S have yet to make the all-important decision on how much UK clothing and home store space is going to have to be closed, as more and more of the market moves online."

M&S also pointed to the success of its Sparks membership club providing personalised offers for customers driven by online and mobile, which now has four million sign ups.

Infrastructure and supply chain

Meanwhile, on the back-end, M&S said it is continuing to invest in supply chain and technology and has completed the rollout of the strategic distribution network with the opening of its repurposed Bradford warehouse as an automated store NDC for the clothing and home business. Its strategic network rollout is on track and will be fully implemented by the end of 2017/18.

In February, M&S purchased the remaining 50% share of its Bradford warehouse for a cash consideration of £56.2 million, which was previously leased to M&S.

The retailer has also make progress on its buying and merchandising systems for clothing and home, with three of the four systems operational, but the final component – assortment planning – will no longer be implemented following a review.

M&S has also written off a further £23.7 million worth of systems following the review, as certain buying and merchandising systems were no longer required.