Ratings downgrade. In May 2013, Fitch Ratings downgraded M&S’ Long-term Issuer Default Rating (IDR) and senior unsecured rating to 'BBB-' from 'BBB'. The downgrade reflects M&S's weakened business risk profile as highlighted in its FY13 results, with a drop in underlying operating profit. It is also reflective of a difficult consumer environment and the structural changes affecting large UK clothing retailers, including: competition from value clothing retailers such as Primark and the supermarkets, the growth of multi-channel retailing, the intensity of promotional activities and the fact that consumers are less loyal to brands/retailers, switching between retailers for better promotions or deals.
Clothing drags down profits. In 1H13 M&S’ profit before tax fell 10% to £290m – the Group’s second consecutive drop – after it missed key fashion trends in womenswear early in 2012. Continuing the trend, in FY13, M&S reported its lowest annual profit in four years, in line with analyst estimates, as the Group’s struggling general merchandise division dragged on the growth in food sales. As of March 2013, M&S’ clothing business had posted seven consecutive quarters of underlying sales declines.
o M&S announced in May 2013 that growth in FY14 will be held back by investment in its online business and logistics.