Marks & Spencer has issued a shock profit warning amid rapidly ailing consumer confidence.
The retail giant reported a drop in sales of 5.3 per cent in the 13 weeks to June 28 and warned there was no sign of relief ahead.
M&S shares plummeted following the announcement, closing down 78p at 240p. The 24.5 per cent drop wiped more than £1billion from the value of the company.
In a trading update, Marks & Spencer chief executive Sir Stuart Rose said sentiment on the high street had worsened since the firm announced its preliminary results in May.
“Since then, consumer confidence levels have deteriorated markedly and market conditions have become more challenging,” he said.
The firm also announced the immediate departure of director of food Steven Esom, who joined from Waitrose just over a year ago, following a “significantly weaker” performance in its food business.
“In order to meet these challenging market conditions, we need to increase the pace of change on a number of operating and trading initiatives,” said Sir Stuart.
He said the “Dine in for £10” campaign had responded to more price-conscious shoppers and the firm would look at similar initiatives. M&S also announced in May that it was launching pilot schemes to stock well-known brands such as Marmite and Heinz baked beans.
“We want to make sure that our business is fully equipped to meet the downturn, which is going to be longer and more hard-fought than first anticipated,” said Sir Stuart. “This is certainly going to go right through into 2009. There is absolutely no sign of relief."
John Dixon, currently director of Home and M&S Direct, has been appointed director of food to replace Steven Esom.
M&S said general merchandise sales were down 6.2 per cent on a same-store basis. Food sales were down 4.5 per cent as consumers feel the squeeze from rising energy, mortgage and food prices.
M&S also pointed to “increased competitor pricing and promotional activity, coupled with changes in consumer buying patterns” which have seen cash-strapped shoppers shun high-end M&S in favour of cheaper competitors.
Industry data last week showed Aldi’s sales surged 21 per cent in the 12 weeks to June 15 over the same period the year before, while more expensive rivals like M&S and Sainsbury’s lost ground.
Sir Stuart said the current slowdown was the “third dab of the brakes” seen since last November, adding the economy was in a “very uncomfortable place”.
“Everybody is going to have to swallow hard and cut our cloth accordingly,” he said.
He said the sales update was “effectively an earnings downgrade” and warned others would follow suit.
“I can’t believe this is a Marks & Spencer exclusive problem, I think this is definitely a retail slowdown and we don’t know where it’s going,’’ he said.
The City showed agreement as shares in rivals Next and Sainsbury’s also fell.
But Panmure Gordon’s Philip Dorgan said the “terrible” trading update was “at least half M&S specific,’’ saying its food business lacked scale, was threatened by premium ranges at supermarkets and was high-price and also high-cost.
Sir Stuart, who collected his knighthood in May, faces a shareholder vote next Wednesday to approve his appointment as executive chairman.
Many shareholders have expressed concern at his move from chief executive to executive chairman, but Sir Stuart said he was “very confident” of being approved.
Corporate governance research group Pensions and Investment Research Consultants last week urged shareholders to vote against the move.
Marks & Spencer reported annual profits in excess of £1 billion in May but said the company’s bonus pot would be cut from last year’s £91 million to £16.8 million this year, as the retailer did not meet its internal targets set last April.