Marks & Spencer hits an 8-year low after clothes sales slide

Pressure grows on chief executive despite stellar showing by food business

The Marks & Spencer company logo outside the company's flagship store on Oxford Street in London (Bloomberg)

Falling clothes sales at Marks & Spencer have dragged down the retail giant's annual profits to an eight-year low, as it said the executive behind the “Your M&S” branding is to step down.

The high street stalwart yesterday mounted a vigorous defence of its strategy after profits fell for the second consecutive year, and vowed to slash capital expenditure over the next two years in an attempt to boost its bottom line.

Pre-tax profits at M&S tumbled by 14 per cent to £564.3m over the year to 30 March, which was its worst performance since 2005. This followed a 4.1 per cent fall in underlying clothing and homeware sales over the year, but the main damage to its profitability was done by £100.9m of exceptional items, notably costs of £75.3m from buying back bonds.

The results intensified the pressure on the chief executive Marc Bolland, who took the helm in May 2010 and has now presided over seven consecutive quarters of falling clothing and homeware sales. Yesterday he said: "A big job comes with pressure and I knew that when I started the job."

But the retailer's finance director, Alan Stewart, said the board had the full support of investors, despite public grumblings from some, such as Standard Life. Mr Stewart said: "The clear message they give us is: 'Don't be distracted from the strategy and transformation'."

Indeed, M&S's profits last year would have been much worse without a stellar performance from the group's food business, which accounts for more than half of sales.

Boosted by new upmarket lines and the success of its meal deals, the retailer's like-for-like food sales rose 1.7 per cent.

Nevertheless, a turnaround in M&S fortunes now largely rests on its autumn and winter collection, which it launched to a fanfare last week, and which has been billed in some quarters as make or break for Mr Bolland. He tried to play down the significance of the new ranges, stressing they were a "step in the right direction", and had received "very strong support from the fashion press".

Stripping out exceptional items, M&S posted a 6 per cent fall in underlying profits to £665.2m, which was in line with City expectations. But this was its lowest profit since 2009 and makes the £1bn-plus posted in 2008 seem like a distant memory.

M&S held its full-year dividend flat at 17p to the disappointment of its army of Middle England shareholders. But its shares powered ahead by 27.4p, or 6 per cent, to 467.9p yesterday – their highest since January 2008.

This continues their strong run this year, partly inflated by rumours the retailer could become a takeover target. In a further tonic for investors, M&S said yesterday it would cut its capital expenditure to £775m this financial year from its previous guidance of £850m.

More dramatically, this will be cut to just £550m in 2014-15, reflecting the fact that by then it will have done much of the "heavy lifting" in terms of modernising its legacy systems and infrastructure.

In the latest in a series of personnel changes, M&S said its marketing chief Steve Sharp – the inspiration behind the "Your M&S" advertising campaigns – is to step down next February after 10 years at the company.

He will leave the board in July but will continue to work as creative director until his departure. Mr Sharp will be replaced as executive director of marketing by Patrick Bousquet-Chavanne.

The M&S chairman, Robert Swannell, said: "Steve has been responsible for many of the company's iconic campaigns."