MARKS & Spencer yesterday revealed plans to make dramatic cuts in its capital investment as it unveiled a slump in second-quarter sales that highlighted continuing high street woes.
Sir Stuart Rose, chairman of Britain's biggest clothing group, said M&S would rein in capital spending to £700 million this year – down from its previous guidance of £800m to £900m.
The cut will be even more swingeing next year, with planned capi
tal spending of £400m as the company adjusts to the sharply showing economy.
The cutbacks are mainly in the firm's store refurbishment programme, but a spokesman yesterday refused to rule out reduced funding in areas such as designer fashion collections.
City analysts welcomed the move as reducing the likelihood that M&S would cut its dividend, and the group's shares shot up yesterday, ending the day 8 per cent or 17p higher at 227.25p.
M&S's same-floorspace general merchandise sales, which take in clothes and homewares, fell 6.4 per cent in the 13 weeks to 27 September.
Hard-hit shoppers looking to save on food bills snubbed M&S's premium-end goods, with sales down 5.9 per cent over the period, taking the overall group fall to 6.1 per cent.
Nick Bubb, retail analyst at Pali International, said: "The market will like the cut in capital spending. I don't think there will be any more downgrades for the full year."
Bubb has kept his own pre-tax profit forecast for this year at £670m – down from the £1 billion M&S made last year, the first time it had breached the billion-pound barrier in a decade.
The declines were broadly in line with expectations. A Reuters poll of ten analysts found that general merchandise sales were forecast to fall 6.4 per cent and food sales by 6.5 per cent.
The stock has shed more than two-thirds of its value over the past 18 months and was savaged after a profit warning in July, when the group said it was suffering from a consumer downturn and mistakes at its upmarket food business.
The shares hit a seven-year low of 191.9p on Tuesday as analysts cut profit forecasts ahead of the trading update. They have lagged the DJ Stoxx European retail index by 53 per cent over the past year.
"Consumer confidence remains fragile and the retail environment unpredictable," Rose said. "Consumers are increasingly cautious about their budgets."
M&S, whose 600-plus British stores are visited by more than 21 million people every week, said it had stepped up promotions and, as a result, expected UK gross margins – a measure of profitability – to fall by one percentage point this financial year.
The group also said it was bearing down on costs and now expected operating cost growth of 4 to 5 per cent this financial year, down from previous guidance of 7 per cent.
The full article contains 496 words and appears in The Scotsman newspaper.
