Gloom deepens at Marks & Spencer after fresh sales fall

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Struggling Marks & Spencer clocked up its sixth consecutive quarter of plunging like-for-like sales yesterday as it slipped further behind its high street rivals.

Struggling Marks & Spencer clocked up its sixth consecutive quarter of plunging like-for-like sales yesterday as it slipped further behind its high street rivals.

A poor performance at the group's major city centre stores exacerbated the retailer's troubles, putting a question mark over their future within the group.

Total underlying sales fell by 4.9 per cent during its fourth quarter, although that masked a 6.7 per cent decline in clothing and home sales and an estimated 0.5 per cent boost from an early Easter. It did, however, represent a slight improvement from the 6 per cent fall in group underlying sales during its third quarter.

Despite a further loss of market share across its clothing business, Stuart Rose, the chief executive, declared the quarter had not been all bad, claiming the group had made "steady underlying progress". He added: "The good news is it hasn't got any worse against an environment in clothing which has got worse, especially in fashion."

M&S's performance contrasted with the sales growth reported by Tesco, which revealed that its nascent clothing business grew sales by 28 per cent.

Nevertheless, shares in M&S rose 4 per cent to 354.75p on relief that the retailer had not issued another profits warning. Nevertheless, the shares have consistently traded below the 400p level that Philip Green offered to pay for the group last July (see graph). Yesterday M&S confirmed it expected profits before tax and exceptional items for the year just ended to be £610m to £625m, within the range it set when it lowered expectations after a disastrous Christmas.

Some analysts downgraded their forecasts for the current financial year, partly on guidance that profits from the group's financial service would be just £15m, half the amount the City had pencilled in.

Matthew McEachran, at Investec Securities, trimmed his forecasts to March 2006 by £45m to £675m. "One would hope that this downgrade would be the last, but given the backdrop to consumer spending and competition, this cannot be said with any certainty at all until the sales line is seen to have stabilised," he said.

Mr Rose said he was encouraged by a rise in clothing volumes, which were up against the same period last year, as was customer footfall. "We always said this year was not about top-line growth," he added.

The group's food arm continued to deteriorate, notching up its sixth consecutive quarter of sales declines. Underlying sales fell 3 per cent during the fourth quarter, dragged lower by a decline at its major city centre stores, where clothing sales also underperformed. Mr Rose said the company had nearly finished reviewing the space within its portfolio, in a move that many analysts expect will lead to store closures. "We are looking at all our space," he said, promising an update when it reports its full-year results next month.

The group, which is trialing a number of new store designs in town and city centres such as Basingstoke, trimmed its projected capital expenditure for 2005/06 to between £300m and £350m from previous guidance of £400m. Mr Rose said the new-look stores were performing well but that the group had not decided whether to hit the button on a roll out.

Mr Rose said the group's problems were still "self-inflicted". He added: "The adverse publicity with the abortive bid has highlighted M&S in the public domain and it takes time to overcome people's prejudices."

The group slashed prices by 5 per cent on average last year in attempt to regain a competitive edge against the likes of Next. It is committed to 30 per cent less forward stock than it was this time last year, enabling it to be more responsive to swings in summer fashion trends. It said it was on track to boost its bought-in margin by £120m for the year to March 2006 and by £140m for the following year.