Page last updated at 18:24 GMT, Tuesday, 4 November 2008

M&S suffers sharp fall in profits

M&S chief Sir Stuart Rose
M&S chief Sir Stuart Rose says business has been volatile

Half-year profits at Marks and Spencer have fallen 34% as the weakening economy has hit consumer confidence.

The retailer said pre-tax profit stood at 297.8m in the first half of the financial year, down from 451.8m a year earlier.

Sales of food and clothing both fell more than 5% during the period.

M&S boss Sir Stuart Rose said trade had been volatile in October and he was cautious about the rest of the year given the recent financial crisis.

Customers are increasingly concerned about value and we know that we have to respond accordingly
Sir Stuart Rose, M&S chairman

"The economic environment has changed dramatically and we are now facing the most difficult retail conditions since the early 1990s," Sir Stuart said.

UK sales in stores open more than a year were down 5.7% during the period, with general merchandise down 6.2% and food down 5.3%.

The fall in profit was less than some analysts had expected, boosting M&S's share price.

It closed up 7.6%, or 16.75 pence, at 238.25p.

New range

Sir Stuart said that the market share of M&S's grocery business had declined as the economic downturn deepened and said the firm was "realigning" prices on 530 products.

"In the current market, customers are increasingly concerned about value and we know that we have to respond accordingly," he said.

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The firm also said it was strengthening its clothing range by launching a new brand next year for women aged over 45.

M&S is facing competition from low-cost rivals like Primark, which said on Tuesday that its like-for-like sales had risen 4% in the year ending September 13.

Dividend maintained

Despite talk that the firm would have to cut its dividend to shareholders, it maintained the payout at 8.3p a share.

UK retailers are expected to be in for a tough Christmas trading period as consumers tighten their belts.

Recent official figures showed that the economy shrank for the first time in 16 years between July and September, indicating that the UK is on the brink of recession. Many economists expect the UK to enter a recession in the coming months.

"I think people will want to have a nice, traditional Christmas," Sir Stuart told BBC News.

"They will go to the shops but they'll be selective in what they buy."

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