Case Study 3 - Marks & Spencer pre-tax profits tumble 64 %

The extensive cost of Marks & Spencers restructuring program weighed heavily on the retailers full-year results as profits plummeted by 64pc.

The company stomached more than 400m in charges over the last year as Chief Executive Officer - Steve Rowe embarked on costly but necessary changes to the business.

M&S also suffered a decline in clothing sales in the fourth quarter, while its financial results were hit by a late Easter falling into next years profits.

In the year to April 1, 2017 the retailer posted pre-tax profits of 176.4m, down 63.9 % from 488.8m in the previous year.

The drop follows M&Ss unveiling of plans to pull out of 10 international markets, begin a store closure program in the UK and shut its defined benefit staff pension scheme to future accrual.

Analysts said M&S has a strategically weak position and remains structurally challenged.

Clothing and home sales dropped by a worse-than-expected 5.9pc on a like-for-like basis in the first three months of 2017, compared to a rise of 2.3pc in the third quarter. But Mr Rowe argued that M&S has seen a growth in its full price market share as it has removed excessive discounting.

M&Ss food division proved more robust than clothing, with total sales up 4.2pc. Although like-for-like sales were down 0.8pc, that decline was also affected by the late Easter.

It was revealed last month that the company will launch an online grocery shopping service in the autumn in a bid to capitalize on the strength of its food offering.

Mr Rowe said M&S will begin a low-cost, very small trial at a select few hand-picked stores to test how an online system would work. The company has traditionally resisted providing an online food system as its offering is more centred around short-term food shopping than larger, weekly shops.

M&S has recently announced the hiring of Halfords chief executive Jill McDonald to revive its clothes business, while the appointment of former Asda boss Archie Norman as its new chairman was celebrated by investors earlier this month.

Q: Given the above scenario, you will now prepare a formal report while evaluating how financial accounting tools would appropriately help resolving problems in leading organizations to attain organizational success , while responding to the following questions:-

Q1: Explain the merits and demerits of different types of planning tools while analyzing their application in preparing and forecasting budgets.

Q2: Compare and analyze how by adopting management accounting systems, organizations can respond to financial problems that can lead to attainment of sustainable success.

Q3: Do you agree with Mr. Steve Rowes strategy of exiting 10 international markets, shutting down defined benefit staff pension scheme & focusing on its food division as part of its long term sustainable strategy? Do you consider this an apt management accounting practice?

Q4: Finally, evaluate how Jill McDonald, Halfords Chief Executive can revive M&S clothing business, by using appropriate planning tools for accounting, which will help him to solve the financial problems at M&S and guarantee its sustainable success. Please research and respond appropriately.

Requirement:

As a newly-qualified Management Accountant, you have been asked by your line manager to produce a formal report which analyses the Marks & Spencers planning tools to ensure financial stability and performance as well as ways in which its management accounting has played a key role in preventing and solving financial problems.

Your Report should contain the basics of a Report format like Introduction, Aim, Objectives, answers to the specific questions asked in the case study, followed by your Recommendations, Conclusion and finally Referencing in the end.

Note: Your research should be referenced using the Harvard referencing, system. Please also provide a bibliography using the Harvard referencing system. The recommended word limit is 15002,000 words