Marks & Spencer today dramatically slashed its forecasts for annual profits after it was forced to make deep price cuts to clear excess Christmas stock.
M&S said trading had become more difficult since November and it had been left with “significantly more stock” despite holding special discount days to kick-start festive trading.
Markdowns for the second half of its financial year, including an estimate for the Easter sale, were now expected to be around £40m (€56.95m) higher than a year ago.
Like-for-like sales in the six weeks to January 1 were 5.6% lower than a year ago, with clothing and homewares down 8.5% and food 1.7% worse off.
M&S said it now expected full-year profits before tax and exceptional items to be between £600m and £625m (€854m - €889.9m) – far lower than the market consensus of £678m (€965.4m).
It heaps further pressure on chief executive Stuart Rose, who led the defence of M&S against a £9.1bn (€12.95bn) takeover by Bhs owner Philip Green last year on a promise to revive the fortunes of the high street icon.
Analysts had flagged whispers of poor Christmas trading in the run-up to Christmas, with some warning that like-for-like sales could be as much as 10% lower at M&S.
They are now looking to see if Mr Green will capitalise on M&S’s trading woes by making a new offer when restrictions on bidding are lifted next weekend.
Hilary Cook, of Barclays Stockbrokers, said the trading figures were disappointing when compared with Next, which reported sales growth of 2.9% for the period from August 3 to Christmas Eve.
“M&S has got to turn itself around in a consumer environment that is unfriendly and highly competitive,” she said.
However, she pointed out that M&S remained a very profitable business and annual profits of £625m (€889.9m) would be a creditable performance considering the current conditions on the high street.
This made the task facing Mr Rose harder because efforts to improve profits could damage those parts of the business that are currently performing well, she added.
In the trading update today, M&S said like-for-like sales were down 6% in the 13 weeks to New Year’s Day and followed a 5.5% decline in the previous quarter.
Food sales had been disappointing throughout October and November but had shown some improvement over the Christmas period, the company said.
This was highlighted by the fact that like-for-like sales of food were down 2.9% in the 13-week period. Clothing and homewares were 8.5% lower.
“Despite heightened levels of promotional activity over the Christmas period, including our two Christmas Spectaculars, significantly more stock was carried over into the end-of-season sale compared with last year,” M&S said.
Price reductions had attracted bargain-hunters since Decmebr 26 and M&S said its attempts to clear surplus stock had gone well.
“Stock control is a key priority for the business and total forward commitments are now 25% less than for the equivalent period last year,” the company added.