By Mark Potter
LONDON (Reuters) - Marks and Spencer issued a shock profitwarning and said a consumer downturn was likely to be deeperand last longer than previously expected, sending its sharesplunging over 20 percent to a near seven-year low.
The clothes, food and homewares group said on Wednesdaysales at stores open over a year fell 5.3 percent in the 13weeks to June 28 and its upmarket food business had lost marketshare as cash-strapped shoppers switched to cheaper rivals.
In a trading update rushed out a week earlier than planned,it said Steven Esom, head of food, was leaving after just oneyear in the job and that it would look at more initiatives likeits "Dine In for 10 pounds" campaign to lure back custom.
Chairman Stuart Rose said the sales update was "effectivelyan earnings downgrade" and warned others would follow suit.
"I can't believe this is a Marks & Spencer (M&S) exclusiveproblem, I think this is definitely a retail slowdown and wedon't know where it's going," he told reporters.
Kaupthing analysts agreed, and shares in rivals such asclothing group Next and supermarket chain J Sainsbury alsofell.
"A raft of downgrades appears likely," they said.
However, Panmure Gordon's Philip Dorgan said the "terrible"trading update was "at least half M&S specific," arguing itsfood business lacked scale, was threatened by premium ranges atsupermarkets and was high price and also high cost.
M&S's update adds to growing signs that indebted shoppersare cutting back on luxuries amid rising fuel, food andmortgage costs.
Industry data from TNS Worldpanel last week showed thatsales at discount supermarket group Aldi surged 21 percent inthe 12 weeks to June 15 on the same period the year before,while more expensive rivals like M&S and Sainsbury lost ground.
Rose said the consumer downturn was likely to be "longerand harder fought" than previously expected.
"This is certainly going to go right through into 2009.There is absolutely no sign of relief," he said.
Analysts slashed M&S profit forecasts for the year endingMarch 2009, which had stood around 870 million pounds, withsome cutting to as low as 640 million. That compares withprofits of over 1 billion pounds in the year ended March 2008.
By 11 a.m., M&S shares were down 18.5 percent at 259.25pence, off a near seven-year low of 246.5 pence, and valuingthe company at about 4.1 billion pounds. The cost of insuringM&S's debt against default also rose sharply, a trader said.
TOUGH RUN
M&S, which serves 21 million customers a week from over 600stores, said like-for-like general merchandise sales fell 6.2percent in the 13 weeks to June 28, but that it was holdingmarket share in clothing and outperforming in homewares.
Same-store sales in the group's food business were down 4.5percent and Rose said M&S was losing market share here.
John Dixon will replace Esom, a former Waitrose executive,as head of food, having worked in that business for severalyears before taking up his current post as head of homewares.
Rose said Dixon would have a remit to look at how to adaptM&S's food offering to more price-conscious shoppers, butdenied the company was going downmarket and ruled outintroducing a budget range of foods.
"We may have to, in the very, very intensive food price warthat's going on at the moment, have a slightly differentstance," he told analysts on a conference call, adding thatthis would focus as much on innovation as promotions.
M&S shares have fallen around 60 percent over the past yearand are trading well below the 400 pence level at which retailtycoon Philip Green attempted to buy the firm in 2004.
Rose was brought in to defend M&S against that bid, andthen presided over a recovery that lifted the shares to as highas 759p in April 2007.
"I think we were a weak business in a strong market back in2004. We're definitely a stronger business in a very weakmarket at the moment," Rose said. "We will come out of this,but in the meantime I think we're going to have a pretty toughrun."
He was "very confident" of being approved as executivechairman in a shareholder vote next Wednesday.
Some shareholders expressed concern at Rose's move fromchief executive to executive chairman, which was announced inMay and runs counter to corporate governance guidelines.Corporate governance consultancy PIRC last week urgedshareholders to vote against Rose's election.
(Additional reporting by Richard Barley; Editing by DavidCowell)
