The company, for decades the Rolls-Royce of British retailing, revealed that profits had almost halved from pounds 1.1bn to pounds 655m, the biggest fall in the company's 114-year history.
Peter Salsbury, the company's new chief executive, admitted the performance was "unacceptable".
But he blamed the fall on a "unique set of circumstances", which had shaken the confidence of the company and led to a huge boardroom battle over who should be in control.
M&S said mistakes last year had led to the stores stocking too many poor- selling lines at high prices. "The customer doesn't want millions and millions of square feet of grey and black, even if they are the colours of the season," it said.
Further factors have been an increase in competition on the high street and the diversification of supermarket chains into clothing.
The 19 stores bought from Littlewoods last year have caused more disruption than had been foreseen and have underperformed management expectations. The pain has been felt across the M&S business with sales down in clothing, footwear and gifts as well as home furnishings.
Sales grew slightly in the much-vaunted food department although M&S admitted that the major supermarkets, such as Tesco and Sainsbury's, are pulling further ahead.
The only bright spot in the tale of woe was the financial services division, which saw a 24 per cent increase in profits with strong sales of unit trust and the new Individual Savings Accounts.
As part of the early stages of a strategic review undertaken by Mr Salsbury, M&S has already announced 400 management redundancies at its head office in London and a further 290 job losses at store level.
More redundancies are likely as M&S seeks to introduce a more dynamic culture.
"Everyone will be given a chance but not everyone will make it," Mr Salsbury warned.
To help to restore sales M&S plans to introduce more mid-season changes of merchandise to keep shoppers interested.
In a new departure it plans to group certain ranges together by "lifestyle" rather than by product type.
In underwear, for example, bras and knickers will no longer all be displayed together. Instead they will be separated into three categories - classic, modern and glamour.
More attention will be paid to store design and advertising. The company will also make more use of top designers such as Betty Jackson although it is reluctant to remove the St Michael label from any of its clothing and replace it with names of designers.
There will be more promotional activity such as the recent special offers on suits and swimwear, which saw sales triple and double respectively.
More goods will be sourced from outside the UK to cut costs and enable M&S to charge lower prices.
"The spring prices this year will be around 5 per cent lower than those of last year," Mr Salsbury said.
Retail experts welcomed the ideas and M&S shares rose in the City. Richard Perks, of retail consultants Retail Intelligence, said: "M&S has had one bad season and is in the middle of another.
"But this is not a terminal position. It is still a hugely powerful retailer."
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