Although Peter Salsbury, the new chief executive, tried to stress the positive with a restructuring of the group, City analysts reacted with horror to the warning's severity. The company said it now expected full- year profits to be pounds 625m to pounds 675m, the lowest level since 1992. It compares to pounds 1.1bn last year and analysts' estimates of pounds 850m.
Nick Bubb, retail analyst at SG Securities, said the shares could fall further. "I still think they are overvalued. It is amazing when you consider that a year ago people were forecasting pounds 1.2bn for this year, and now we are going to get pounds 650m. And this from a supposedly safe, solid, blue- chip company."
M&S blamed the warning on disappointing Christmas trading, with sales in the critical November and December months "significantly lower" than expected. The slump was particularly evident in clothing and home furnishings.
Mr Salsbury blamed the underperformance on a mistake in buying volumes for the autumn ranges. Basing orders on trading in the spring when demand was buoyant, M&S ordered too much stock, leading to huge quantities of unsold merchandise that had to be heavily discounted in the sales. He said the company had not anticipated the general deterioration of the market nor the disruption of its expansion programme.
In the five weeks to 2 January, UK sales fell by 4.2 per cent on the same period last year. All major departments were down, with home furnishing sales worst hit with a 13 per cent fall. Clothing, footwear and gift sales were down by 5 per cent, and food sales 1.6 per cent lower.
Mr Salsbury said: "These are poor figures, and highlight the scale of the task facing us. But we have made a start in addressing them. Frankly, I am looking forward to the challenge."
Mr Salsbury's strategy includes re-examining the cost base, which could see the first job losses at the group since 1992. However, the company said it would achieve staff reductions through natural wastage. A single marketing department is being created at M&S for the first time, and there will be more staff on the shop floor to improve customer demands for better service.
The senior management is to be restructured into three business units. Lord Stone will be head of UK retail, with Guy McCracken head of the overseas operations. Financial services will be grouped under Robert Colvill, finance director.
The changes were welcomed in the City, although analysts said it would take some time for the benefits to come through. "It's the right thing to do. But I don't think anyone is underestimating the scale of the challenge," said Nick Hawkins of Merrill Lynch.
The warning is the latest in a series of setbacks for the retail bellwether. In October it announced a sharp fall in profits, complaining of a "bloodbath" in the clothing market. This was followed by a bitter boardroom battle over who would take over as chief executive from Sir Richard Greenbury, now non-executive chairman.Reuse content