Marks & Spencer, Britain's biggest clothing retailer, reported its worst quarterly sales performance for a decade and said it would cut around 1,230 jobs in a bid to save money in a tough trading environment.
Executive chairman Stuart Rose said he expected challenging economic conditions to continue for at least the next 12 months.
"Every company has to cut its cloth according to its means and we are just making sure that ... our company is well placed to deal with what will be an incredibly difficult year," he told reporters yesterday.
The 125-year-old clothing, food and homewares group said like-for-like sales fell 7.1 per cent in Britain in the 13 weeks to December 27, the third quarter of its financial year.
Forecasts were for a fall ranging from 5.5 to 9.6 per cent, according to a company poll of nine analysts.
M&S shares, which have dropped two thirds in value over the past 20 months and underperformed the DJ Stoxx European retail index by 50 per cent last year, hit an eight-week high before easing back to be up 2.2 per cent at 244 pence, valuing it at £3.7 billion.
The news from M&S, which serves more than 21 million Britons a week from over 600 stores, will add to the gloom surrounding the economy as the Bank of England starts its monthly policy meeting, at which it is expected to cut interest rates to their lowest level since it was set up in 1694.
The figures also coincided with the start of a three-day tour of Britain by Prime Minister Gordon Brown to talk to businesses and households about the economic downturn, ahead of a jobs summit next week.
Finance Minister Alistair Darling told the Financial Times yesterday that Britain was "far from through" a recession, while surveys showed demand for staff and take-home pay both weakening.
M&S said it expected its UK gross profit margin for the year to March 31 to be about 1.75 percentage points below 2007-08 due to promotions and discounts, worse than its previous guidance for a fall of around one point.
It said it was managing costs tightly and now expected operating cost growth for the current financial year to be towards the lower end of its forecast range of four to five per cent.
Operating costs for next year would be about one to two per cent below 2008-09 levels, equivalent to a reduction of about £175 million to £200 million, it said.
These would be delivered in part by closing 27 stores, including 25 from its Simply Food format, with the loss of about 780 jobs, and by cutting up to 450 head office staff.
M&S employs around 75,000 people worldwide.
"The cost initiatives are to be applauded," said KBC analyst John Stevenson. But he expected analysts' consensus profit forecast for 2008-09 to fall from about £620 million towards his estimate of £595 million and for earnings to remain under pressure in M&S's next financial year.
"With the pressure on gross margin we've got, and given the sales outlook, we still expect profits to be falling next year."
M&S finance director Ian Dyson told reporters there was no change in group dividend policy "at this stage". Many analysts expect a dividend cut when a decision is made after M&S's March financial year-end. Mr Dyson also said M&S, which had net debt of £3.1 at the end of September, did not have an issue with banking covenants.
"We feel we've got a degree of comfort there and clearly the actions that we're taking around costs and capex ... are designed to make sure we retain that level of comfort," he said.
M&S's like-for-like general merchandise sales, which include clothing and homewares, were down 8.9 per cent in Britain, while food sales on the same basis were down 5.2 per cent, it said.
Rose dismissed the suggestion that M&S's poor Christmas threatened his own position. "If this were an aeroplane flying through a storm I don't think the best thing to do is nip up the front and chuck the pilot out," he said.
Executive chairman Stuart Rose said he expected challenging economic conditions to continue for at least the next 12 months.
"Every company has to cut its cloth according to its means and we are just making sure that ... our company is well placed to deal with what will be an incredibly difficult year," he told reporters yesterday.
The 125-year-old clothing, food and homewares group said like-for-like sales fell 7.1 per cent in Britain in the 13 weeks to December 27, the third quarter of its financial year.
Forecasts were for a fall ranging from 5.5 to 9.6 per cent, according to a company poll of nine analysts.
M&S shares, which have dropped two thirds in value over the past 20 months and underperformed the DJ Stoxx European retail index by 50 per cent last year, hit an eight-week high before easing back to be up 2.2 per cent at 244 pence, valuing it at £3.7 billion.
The news from M&S, which serves more than 21 million Britons a week from over 600 stores, will add to the gloom surrounding the economy as the Bank of England starts its monthly policy meeting, at which it is expected to cut interest rates to their lowest level since it was set up in 1694.
The figures also coincided with the start of a three-day tour of Britain by Prime Minister Gordon Brown to talk to businesses and households about the economic downturn, ahead of a jobs summit next week.
Finance Minister Alistair Darling told the Financial Times yesterday that Britain was "far from through" a recession, while surveys showed demand for staff and take-home pay both weakening.
M&S said it expected its UK gross profit margin for the year to March 31 to be about 1.75 percentage points below 2007-08 due to promotions and discounts, worse than its previous guidance for a fall of around one point.
It said it was managing costs tightly and now expected operating cost growth for the current financial year to be towards the lower end of its forecast range of four to five per cent.
Operating costs for next year would be about one to two per cent below 2008-09 levels, equivalent to a reduction of about £175 million to £200 million, it said.
These would be delivered in part by closing 27 stores, including 25 from its Simply Food format, with the loss of about 780 jobs, and by cutting up to 450 head office staff.
M&S employs around 75,000 people worldwide.
"The cost initiatives are to be applauded," said KBC analyst John Stevenson. But he expected analysts' consensus profit forecast for 2008-09 to fall from about £620 million towards his estimate of £595 million and for earnings to remain under pressure in M&S's next financial year.
"With the pressure on gross margin we've got, and given the sales outlook, we still expect profits to be falling next year."
M&S finance director Ian Dyson told reporters there was no change in group dividend policy "at this stage". Many analysts expect a dividend cut when a decision is made after M&S's March financial year-end. Mr Dyson also said M&S, which had net debt of £3.1 at the end of September, did not have an issue with banking covenants.
"We feel we've got a degree of comfort there and clearly the actions that we're taking around costs and capex ... are designed to make sure we retain that level of comfort," he said.
M&S's like-for-like general merchandise sales, which include clothing and homewares, were down 8.9 per cent in Britain, while food sales on the same basis were down 5.2 per cent, it said.
Rose dismissed the suggestion that M&S's poor Christmas threatened his own position. "If this were an aeroplane flying through a storm I don't think the best thing to do is nip up the front and chuck the pilot out," he said.