Marks & Spencer suffered its biggest fall in quarterly clothing sales since 2005 on Thursday as a decision by new boss Steve Rowe to cut prices and offer fewer promotions took its toll on the British retailer.

M&S said consumer confidence waned in the run up to Britain's European Union referendum last month but said it was too early to judge the implications of the Brexit vote and stuck to its financial guidance for the 2016-17 year.

"We’re operating in uncertain times, consumer confidence weakened in the run-up to the EU referendum and remains fragile," Chief Executive Steve Rowe told reporters.

Ads

He has the tough task of reviving a 132-year-old British institution that has fallen out of fashion over the last decade.

Sales from the company's upmarket food business, its strongest performer in recent years, also went into reverse.

Rowe, a company veteran of 26 years, succeeded Marc Bolland as CEO in April and warned the following month that efforts to turn around its clothing business by cutting prices and improving ranges would come at a cost to short term sales and profit.

"Although these results are on the low side of where I want them to be, they are in line with our plans, it's what we expected," he said.

Analysts were harsher in their verdict.

"The news is horrible," said independent retail analyst Nick Bubb.

Analysts at Liberum cut their 2016-17 pre-tax profit forecast by 4.6 percent. "It is hard to see that full-year (profit) consensus can do anything other than fall," they said.

M&S shares was down 1.6 percent at 289.4 pence at 0930 GMT.

They have fallen 31 percent over the last three months, hammered by the May profit warning and fears Britain's vote to leave the EU could dent consumer demand and increase sourcing costs due to the depreciation of sterling.

Prior to Thursday's first quarter statement, analysts' average forecast for 2016-17 pre-tax profit was 622 million pounds ($808 million), down from 690 million pounds made in 2015-16.

CLOTHING COMPETITION

M&S said that over the 13 weeks to July 2, its fiscal first quarter, sales of clothing and home products at stores open over a year fell 8.9 percent. It was M&S' worst quarterly performance since the first quarter of its 2005-06 year.

Equivalent food sales fell 0.9 percent, worse than analysts had forecast although M&S said it still strongly outperformed the wider food market.

M&S, which has long been Britain's biggest clothing retailer, has seen its market share eroded by rivals like Next and a push from supermarkets into clothing, while younger shoppers favor Primark and H&M's cheaper prices.

ABF said on Thursday it would pursue expansion plans for Primark across Europe and the United States.

Rowe said delaying M&S' summer sale from the first quarter to the second quarter and the removal of 28 promotions took about 5 percent off its like-for-like clothing sales.

The company also said it was pleased with initial results after repricing around 1,000 lines since January.

The plunge in the value of the pound to 30-year lows versus the U.S. dollar since the Brexit vote is another headache as it could mean higher prices for imported goods.

Finance chief Helen Weir said M&S sources 1-1.5 billion pounds of goods in U.S. dollars, about 65 percent of overseas sourcing.

Its policy is to hedge currency requirements up to 18 months ahead. The firm is about 90 percent hedged for the 2016-17 year and 80 percent hedged for spring/summer of the 2017-18 year.

"The main impact that we'll see will start to come through in autumn/winter 2017...Clearly it depends on what happens to the exchange rate," she said.

$1 = 0.7699 pounds