Marks & Spencer yesterday stoked fears that its recovery had stalled when it shocked investors with a sharp fall in fourth-quarter sales.
Roger Holmes, the chief executive, lambasted the group's performance as he admitted it had lost market share on the high street. M&S shares dived 5 per cent to 264p, hitting their lowest level for more than a year.
In a further blow to the retailer's credibility, the credit rating agency Standard & Poor's revised its outlook for the group to "negative" from "stable".
The group's core non-food division, which spans clothing and its revamped homeware ranges, fared much worse than the City feared. Like-for-like sales of general merchandise fell 5.2 per cent in the 11 weeks to 27 March.
But it was the 1.4 per cent decline in like-for-like sales from its food arm, which usually compensates for weak sales in clothing, that most unnerved analysts. Food sales have slumped since last summer, raising question marks over the viability of its stand-alone Simply Food stores which it is rolling out.
Although the company, which is planning to axe 1,000 jobs, said cost cuts would offset its poor fourth-quarter sales and help it meet full-year profit forecasts of around £755m, analysts downgraded their expectations for next year. "Cost-cutting alone won't prop up profits for ever," Nick Bubb, at Evolution Beeson Gregory, said. Cazenove, its house broker, slashed its profit forecast for 2004/05 by £50m to £800m, while Dresdner Kleinwort Wasserstein cut its expectations by 3 per cent to £825m.
Mr Holmes, who has promised repeatedly to return the group to a position where it can take business from its rivals, said yesterday: "I would expect we have had a small fall in overall market share." Yesterday's poor figures mean the group has not made any headway for the past 15 months, despite recent claims by the chairman, Luc Vandevelde, that M&S had completed its recovery phase.
Mr Holmes said the group, which has handed control of its clothing and store designs to its homeware boss, Vittorio Radice, fared worst in product areas such as formal womenswear and knitwear. Rather than embark on plans to turn around performance, Mr Holmes said he would step up the plans under way to revamp its store estate and overhaul its women's clothing into different sub-brands. "Having sustained this weak performance, it has raised the urgency to strengthen the actions we're taking."
He said the new-look stores would have more of a "shop-within-a-shop feel", building on the success of its separate Per Una womenswear brand. "I am convinced the direction we are going is correct but we need to accelerate that." It launches Per Una Due, a label many times removed from its core middle-England image, next month, and yesterday Mr Holmes promised "further brand launches" next September. He declined to estimate how much it would spend on a facelift for its300-plus stores, but said capital expenditure next year would not exceed £400m.
The group revealed that sales of its homeware ranges, relaunched with great aplomb at the opening of its Lifestore in Gateshead, had fallen by 13.7 per cent. Although the Lifestore won critical acclaim, most analysts are sceptical it can revive the group's fortunes. The poor performance of its food arm will reflect badly on Justin King, who headed the division before joining J Sainsbury as chief executive. Mr Holmes blamed the sales fall on a lack of new products and its failure to gauge the British love affair with the low-carbohydrate Atkins diet.
Fending off criticism that Mr Vandevelde, who recently joined the board of the French retailer Carrefour, was not spending enough time at M&S, Mr Holmes said: "Luc is giving me all the support I ask for."
Total like-for-like sales fell 3.4 per cent in Q4, dragging underlying sales for the year to 27 March down 0.4 per cent.