Marks & Spencer suffered a 6.1 per cent like-for-like sales drop in its second quarter and has scaled back spending plans as it is hit by falling consumer confidence.
The retailer revealed that its general merchandise division – which includes clothing and home – fell 6.4 per cent on a like-for-like basis in the 13 weeks to September 27. Like-for-like food sales fell 5.9 per cent.
M&S executive chairman Sir Stuart Rose said consumer confidence “remains fragile” and “the retail environment unpredictable”.
“Consumers are increasingly cautious about their budgets,” he said. “We have responded by offering our customers better values and more promotions across the business, while at the same time tightly controlling our costs.”
Group sales increased 0.4 per cent during the period and fell 1.6 per cent in the UK. Clothing sales dropped 3.5 per cent but home put in a more resilient performance to record an uplift of 2.9 per cent. Food sales fell 0.5 per cent. Online sales soared 34 per cent and international sales rose 24.2 per cent.
Rose said the retailer will slash capital expenditure to£700 million in the year, compared with previous estimates of between£800 million and£900 million.
In the year 2009/2010 he expects to spend about£400 million, focused on supply chain and IT systems. Rose reduced guidance for operating cost growth for the full year from 7 per cent to between 4 and 5 per cent.
Marks & Spencer expects a reduction of 100 basis points in UK gross margin for the full year, dependent on market conditions.
Pali International analyst Nick Bubb said that there have been “useful cost savings”.
He said the market will like the cuts to capital expenditure, which will leave net debt at “only” about£3.3 billion at year end.
However, he warned: “There is scope for second thoughts – eg on how M&S has slashed operating costs (will it affect customer service?) and on how it has slashed capex (will a freeze on store refurbishment affect sales?).
“And with the worst Christmas for at least 30 years coming up for non-food retailers, we wouldn't get carried away, but the shares have fallen far enough in the short term and M&S is off the hook for the time being.”
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