Marks & Spencer unveiled tumbling third-quarter underlying sales and a massive cost-cutting programme yesterday, but its chairman, Sir Stuart Rose, came out fighting and said he had no regrets about launching the store's huge discounts before Christmas.
The retail giant said that its UK like-for-like sales tumbled by 7.1 per cent for the 13 weeks to 27 December, with its clothing-dominated general merchandise sales down by 8.9 per cent and a 5.2 per cent fall in food sales, which was a slight improvement on its first half.
City analysts were relieved that the figures were not quite as bad as expected, but cautioned that M&S is underperforming a number of its key rivals and again raised questions that its final dividend may have to be trimmed.
Sir Stuart said that M&S had maintained its market share in clothing, citing good performances in children's and lingerie. "Do you know, we sold enough Magic Knickers to take a quarter of a million inches off the waistlines of British women?" Sir Stuart said.
But Tony Shiret, the Credit Suisse analyst, said: "I believe they are losing market share in clothing and food."
On Tuesday, Next, the UK's second biggest retailer of clothing behind M&S, delivered like-for-like sales down by 7 per cent for the period from 29 July to 24 December. Debenhams posted underlying sales down by 3.3 per cent for the 12 weeks to 3 January.
Sir Stuart said that M&S was not alone among retailers in seeing traffic "drop away enormously" in October and November, and decided to respond with a huge one-day sale, which it followed with another. "Once we had done that, the traffic started coming through and Christmas arrived, as we wanted it to," said Sir Stuart.
However, M&S said its full-year UK retail gross margin will be 175 basis points lower as a result of increased promotional activity, especially in food. The 5.2 per cent fall in food for the third quarter was marginally better than the 5.3 per cent decline in the first half, but is still a long way behind the positive like-for-like sales delivered by all the big four grocers before Christmas.
However, M&S said it planned to close 25 of its underperforming Simply Food stores and two general stores with the loss of 780 jobs. A further 450 jobs are to be axed at its head office. The high street bellwether also rev-ealed it is to cap employees' annual increase in pensionable pay to 1 per cent, which applies to the 21,000 members of its final-salary pension scheme, as well as change the early retirement benefits for members who joined the scheme before 1996. It plans to slash its UK operating costs by between £175m and £200m next year.
KBC Peel Hunt's John Stevenson has forecast a pre-tax profit of £595m for its current financial year, but said this could fall by up to a further 30 per cent to £421m for the year to March 2010. If his forecast for next year holds true, M&S would find it difficult to maintain its final dividend next year.
Shares in M&S rose by 5.25p to 244p yesterday. Elsewhere in the retail sector, Thorntons, the chocolate retailer, said underlying sales for the 12 weeks to 27 December declined by 2.3 per cent. Blacks Leisure, the retailer of outdoor fashion, said a dire performance from its boardwear division dragged its like-for-like sales down by 3.9 per cent for the 18 weeks to 3 January.
Separately, Viyella, the 107-store and concession womenswear retailer, became the latest chain to collapse into administration yesterday, putting at risk 645 jobs if a buyer is not found.