Marks & Spencer yesterday blamed mountains of stock for issuing a swingeing profits warning after its worst Christmas for six years.
The group was forced to rush out its trading statement after it struggled to clear excess stock despite breaking with tradition and holding two pre-Christmas sale days. It was not due to report until Wednesday.
M&S said the impact of clearing the extra clothing had blown a £40m hole in its second-half profits. It also admitted underlying sales had been even worse than analysts had expected, despite the boost from the two "20 per cent" off days.
It now expects pre-tax profits for the year to March to be between £600m and £625m against previous expectations of £645m to £680m.
Underlying group sales fell 5.6 per cent in the six weeks to 1 January. Even this figure masked an 8.5 per cent decline in total underlying clothing and home sales. The group clocked up its fifth consecutive quarter of like-for-like sales declines, with a 6 per cent fall in the 13 weeks to 1 January.
Stuart Rose, the chief executive, said: "I'd have liked to have reported better figures, but am I surprised by them? No." He pinned the blame for the profits warning firmly on the stock commitments that he inherited from his predecessor, Roger Holmes. "The bulk of the problem was that we just had too much. We were over-egged. We're not just talking about tens of millions here but quite a bit more," he said.
He estimated the two mega-sale days, in late November and early December, had contributed an extra 1 per cent in sales - or about £10m. "I took the view we needed to clear the decks for spring, which is what we have done."
Mr Rose defended the decision to hold the two sales days, insisting that "with hindsight I'd do it again". He added: "I was attempting to liquidate that stock at 20 per cent rather than leave it for after Christmas at 50 per cent." Total clothing sales fell 4.9 per cent during the six-week period.
But some analysts queried the impact of the sales, arguing they should have added much more than £10m to the top line. Tony Shiret, at Credit Suisse First Boston, said: "Accordingly, the declines disclosed will, in our view, have been materially worse than the figures noted above.
"In other words we believe that even these poor figures understate the true extent of disarray at M&S."
Mr Rose's strategy for turning around the troubled retailer, which turned down a mooted 400p-per-share bid from Philip Green last summer, hinges on cutting its forward stock commitments so it can react more quickly to current trends.
M&S has 25 per cent less forward stock commitments than it had last January. "That's a very good place to be. It's the first time this business has been in this position for a number of years," Mr Rose said. "If sales look encouraging I want the girls and boys to be able to get on the phone on a Monday and say 'more stock', not do what they've been doing since I got here, which is to say, 'cancel stock, cancel stock, cancel stock'."
The group's home furnishings division continued to haemorrhage sales, falling another 23.3 per cent over the festive period. All of the goods designed under Vittorio Radice's brief tenure have been sold, Mr Rose said, adding: "I hope we have reached the low point and we will now start building again."
Despite the collapse in sales, shares in M&S rose 9.25p to 348p on speculation that Mr Green could return for a third assault. His six-month ban on bidding for M&S ends next month.
A glimmer of hope came from M&S's food arm, which has also been fading. Over Christmas, it limited its like-for-like sales decline to 1.7 per cent. Underlying food sales fell 2.9 per cent during the third quarter.
Elsewhere, Big Food Group, which has agreed to a £326m takeover by Baugur, revealed like-for-like sales at its Iceland chain fell 3.5 per cent over the five-week Christmas period. Waitrose, which is owned by John Lewis, fared better with a 50 per cent jump in sales during the week to Christmas Day.
Meanwhile, J Sainsbury woes deepened ahead of its trading update next week after it emerged a technical glitch had left some of its shelves bereft of fresh produce in some key central London stores.
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