Page last updated at 15:38 GMT, Wednesday, 2 July 2008 16:38 UK

M&S shares dive on gloomy outlook

M&S boss Sir Stuart Rose on sales figures and future prospects

The boss of Marks and Spencer has warned of "stormy times ahead" for the UK economy - as his firm said a slide in consumer confidence had hit sales.

M&S shares sank by 24.5% after the gloomy comments - with Sir Stuart Rose saying UK woes would be "more of a two-year problem than a two-month one".

Like-for-like UK sales dropped 5.3% in the past three months, M&S said.

Separate data suggested that high petrol prices had led to a drop in trips to out-of-town shopping centres.

According to figures from Experian's footfall index, visitor numbers fell by 5.8% in June from the same month a year ago.

Housebuilder Taylor Wimpey added to the negative sentiment hitting UK markets after it said it had failed to secure 500m of extra cash from shareholders.

Graph of M and S share price

Its shares fell 41.7% in trading on the London Stock Exchange.

Taylor Wimpey also said that it was closing one third of its offices and that demand for new houses had slumped.

Food focus

M&S said conditions on the UK High Street were "challenging".

Its shares closed down 24.5%, or 78 pence, at 240p in London.

Widely regarded as a key barometer of consumer sentiment, the M&S comments prompted shares in other retailers, such as Sainsbury's and Next, to also fall sharply.

"It's a simple problem. Customers are feeling the pinch," said Sir Stuart.

"I do not believe any company will be immune. It's a UK Plc economic problem, indeed a world economic problem."

Consumer confidence levels have deteriorated markedly and market conditions have become more challenging
Sir Stuart Rose
M&S chairman and chief executive

M&S's food business - which focuses on top end produce - has been badly hit by customers cutting back on spending and the director of its food business is leaving the firm immediately as part of a management reshuffle.

General merchandise sales had also lost ground - but were in-line with the downturn seen by competitors.

"Food had previously been regarded as something of a flagship product, whereas consumers are clearly beginning to downgrade their shopping habits," said Richard Hunter of Hargreaves Lansdowne Stockbrokers.

Data from TNS WorldPanel last week showed that sales at discount supermarkets Aldi and Lidl had surged by 21% and 13% respectively in the 12 weeks to June 15, from the same period a year earlier.

Challenging conditions

Seymour Pierce analyst Freddie George said that it was inevitable there would be worries about the firm's position.

He said that concerns will grow over "the strategy on food and the refurbishment programme, and the high debt levels of the group".

The High Street retailer had already expressed caution about consumer sentiment in May, when it said there had been a "mixed" start to its 2008/9 financial year.

But Sir Stuart said that since then, "consumer confidence levels have deteriorated markedly and market conditions have become more challenging".

But he added: "Four years ago, M&S was a weak business in a strong market. Today, we are a strong business in a weak market."

M&S said like-for-like sales - which strip out the impact of store openings and closures - were down 5.3% in the UK in the 13 weeks to 28 June.

Like-for-like food sales were down 4.5%, while general merchandise sales fell 6.2%.

M&S has become renowned for its "Simply Food" products - which are marketed as fresh and high quality but are more expensive than some other stores.

"Pressures on consumer spending and increased competitor pricing and promotional activity, coupled with changes in consumer buying patterns, have resulted in a significantly weaker performance," Sir Stuart said.

"In order to meet these challenging market conditions, we need to increase the pace of change on a number of operating and trading initiatives"

This means the director of food, Steven Esom, is stepping down immediately, and will be replaced by John Dixon, the boss of M&S Home and delivery business M&S Direct.

Last month, M&S gave a hint of the tough High Street environment, lowering the profits the firm has to make for directors to earn bonuses.

M&S profits for the year to the end of March 2009 are expected to be well below the 1bn recorded in the previous year.

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