Marks & Spencer Plc, Britain's biggest clothing retailer, posted a 6.1 percent drop in second-quarter core sales and said it was cutting investment and stepping up promotions in a tough market.
The 114-year-old mainstay of UK retailing said on Thursday like-for-like general merchandise sales, which span clothing and homewares, fell 6.4 percent in the 13 weeks to Sept. 27.
Food sales on the same basis were down 5.9 percent.
The declines were broadly in line with expectations. A Reuters poll of 10 analysts found general merchandise sales were forecast to fall 6.4 percent and food sales by 6.5 percent.
"The market will like the cut in capital spending. I don't think there will be any more downgrades for the full year," said Pali International analyst Nick Bubb, who kept his profit forecast at 670 million pounds ($1.2 billion).
Traders said Marks & Spencer (M&S) shares were likely to open up by between 3.5 and 6 percent, having closed at 210.25 pence on Wednesday.
The stock has plunged over two-thirds over the past 18 months and was savaged after a profit warning in July, when the group said it was suffering from a consumer downturn and mistakes at its upmarket food business.
"Consumer confidence remains fragile and the retail environment unpredictable," said Chairman Stuart Rose. "Consumers are increasingly cautious about their budgets."
M&S, whose 600-plus British stores are visited by more than 21 million people every week, said it had stepped up promotions and, as a result, expected UK gross margins — a measure of profitability — to fall 100 basis points this financial year.
Faced with speculation it might have to cut its dividend, M&S said it would rein in capital spending to 700 million pounds from its previous guidance of 800 to 900 million, and would reduce this to 400 million next year by reining in store refits.
The group also said it was bearing down on costs and now expected operating cost growth of 4 to 5 percent this financial year, versus its previous guidance of 7 percent.
M&S shares have lagged the DJ Stoxx European retail index by 53 percent over the past year.
They hit a 7-1/2 year low of 191.9 pence on Tuesday as analysts cut profit forecasts ahead of the trading update. Analysts' average forecast is now around 685 million pounds, according to Reuters Estimates, down from over 1 billion pounds at the start of the year.
