MARKS & Spencer yesterday sent a shockwave through the retail sector by issuing a surprise profit warning, having been hit by slowing sales in its core UK market.
The high street icon said the current consumer downturn was likely to be deeper and last longer than previously expected.
Some £1.25 billion was wiped from the value of the company as the share price slumped 25 per cent to 240p.
M&S said UK l
ike-for-like sales dropped 5.3 per cent over the 13 weeks to 28 June, with the biggest drop coming in general merchandise at 6.2 per cent. Food was also hard-hit, with sales coming in 4.5 per cent lower.
The firm also announced that Steven Esom, its head of food, was to quit the board after just a year in the job.
Chairman Sir Stuart Rose said the trading statement was "effectively an earnings downgrade" and warned others would follow suit. He said: "I can't believe this is a Marks & Spencer exclusive problem, I think this is definitely a retail slowdown and we don't know where it's going."
Rose added: "At our preliminary results in May, we reported a mixed start to our 2008-9 financial year and expressed caution about consumer sentiment. Since then, consumer confidence levels have deteriorated markedly and market conditions have become more challenging."
Analyst opinion was mixed on whether the problem was specific to M&S or more widespread.
Panmure Gordon's Philip Dorgan said the "terrible" trading update was "at least half M&S-specific," arguing its food business lacked scale, was threatened by premium ranges at supermarkets and was high cost as well as high price.
But Kaupthing analysts agreed with Rose. "A raft of downgrades appears likely," they said, pushing shares in rivals such as clothing group Next and supermarket chain Sainsbury's lower.
Analysts slashed their M&S profit forecasts for the year ending March 2009, which had stood at about £870m, with some cutting it to as low as £640m. That compares with profits of more than £1 billion in the year ended March 2008.
On a more upbeat note, Rose said international sales were up 24.1 per cent, while in the UK, the firm said it was holding market share in clothing and outperforming in homewares.
Esom is to be replaced by John Dixon, who worked at M&S's food business for several years before taking up his current post as head of homewares.
Explaining the sudden departure of Esom, the company said it wanted to "increase the pace of change" in the food business.
In May, M&S announced initiatives including selling branded food favourites such as Marmite and Heinz baked beans for the first time.
M&S shares have fallen by about 60 per cent over the past year and are trading well below the 400p level at which retail tycoon Philip Green attempted to buy the firm in 2004.
Discount chains cash in on bargain-hunters DISCOUNT food retailers are enjoying a boom as consumers reject premium brands amid the credit crunch, analysts say.
Marks & Spencer's profit warning on dropping food sales comes as discount chains Aldi, Lidl and Iceland report significant growth. Aldi has announced it will be opening a new store in Britain every week to woo bargain-hunters during the economic downturn.
The expansion plan was unveiled after the German-owned discount chain posted a record 20 per cent rise in sales in the previous month, taking custom away from Tesco, Asda, Sainsbury's and Morrisons.
Chief executive Sir Stuart Rose said M&S's premium-end food business had suffered due to increased supermarket competition, as well as customers opting for cheaper alternatives.
The full article contains 623 words and appears in The Scotsman newspaper.
