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Last Updated: Friday, 7 January, 2005, 18:09 GMT
M&S profit warning as sales slide
M&S store
M&S said the trading environment has been "difficult"
Marks & Spencer has reported a fall in sales over the crucial Christmas trading period and warned profits will fall short of expectations.

In the six weeks to 3 January, sales were down 5.6% on the previous year.

M&S added that deep discounting to shift unsold stock in the sales would eat into profits, with markdown costs set to be 40m higher than a year ago.

The retailer is now forecasting annual profits of between 600m-625m, against analyst expectations of about 675m.

Licking wounds

The figures come as a blow to the iconic retailer, which had hoped to see a turnaround in its fortunes in the wake of last summer's bid battle with Bhs owner and entrepreneur Philip Green.

You can't judge the business recovery on this Christmas
Stuart Rose, chief executive

And the news piles more pressure on chief executive Stuart Rose who defended M&S against Mr Green's 9.1bn takeover bid, with the promise to shareholders that he would revive its fortunes.

The market will be looking to see if Mr Green takes advantage of M&S's trading woes and the subsequent fall in its share price by making a new offer.

Restrictions on bidding for M&S are lifted next weekend.

Lean and mean

Stuart Rose, meanwhile, said the company was in a much leaner condition despite the fall in sales.

"You can't judge the business recovery on this Christmas," Mr Rose said.

"This is something we had to digest, although is has cost a little bit more than I thought it would."

He said the figures changed nothing about what M&S is planning over the next year, a year he has coined as its "recovery" year.

High street blues

Disappointing figures had been expected by some analysts, and M&S is not the only High Street name to have suffered from a poor festive trading period.

M&S has got to turn itself around in a consumer environment that is unfriendly and highly competitive
Hilary Cook, Barclays Stockbrokers

House of Fraser, Woolworths, Ottakar's and Iceland-owner Big Food Group have all reported disappointing results.

M&S said clothing and homeware sales were down 8.5% in the six weeks to 1 January, while food sales fell by 1.7%.

The company reported good clearance of its sale stocks, and, according to Mr Rose, has been squeezed out "like toothpaste", with bargain-hunters flooding its stores since Boxing Day.

Markdowns

But the impact of heavy discounting in the run up to Christmas contributed to higher markdown costs for the quarter.

It added that markdown costs for the second half of the year, including an estimate for the Easter sales, are now set to be about 40m higher than a year ago.

Like-for-like sales for the 12 weeks to 2 October were down 5.5% on a year ago, while for the 13 weeks to 1 January sales were down 6%.

Though the figures were disappointing when compared to rival Next, M&S remains a very profitable business, one analyst pointed out.

Hilary Cook, of Barclays Stockbrokers, said M&S's projected annual profits of 625m would be a creditable performance given the tough climate on the High Street.

"M&S has got to turn itself around in a consumer environment that is unfriendly and highly competitive," she said.

Shares in M&S fell in early trade before recovering. They closed up up 9.25p at 348p on Friday.




BBC NEWS: VIDEO AND AUDIO
Why the season was gloomy for M&S




SEE ALSO:
M&S unveils management shake-up
09 Nov 04 |  Business
M&S starts share buyback scheme
25 Oct 04 |  Business
M&S share buyback wins approval
22 Oct 04 |  Business
M&S says sales fall now slowing
12 Oct 04 |  Business
The Battle for Marks and Spencer
05 Oct 04 |  Business


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