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.
The 125-year-old clothing, food and homewares group said on Wednesday UK like-for-like sales fell 7.1 percent in the 13 weeks to Dec. 27, the third quarter of its financial year.
Forecasts were for a fall ranging from 5.5 to 9.6 percent, according to a company poll of nine analysts.
The news from Marks & Spencer (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.
Finance Minister Alistair Darling told the Financial Times on Wednesday 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 UK gross profit margins 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 1 point.
It said 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 4 to 5 percent.
Operating costs for next year would be about 1-2 percent below 2008-09 levels, equivalent to a reduction of about 175 million pounds ($261 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.
"We expect challenging economic conditions to continue for at least the next 12 months," Chairman Stuart Rose said in a statement.
Traders said M&S shares, which have dropped two thirds in value over the past 20 months, were set to open up 2 percent.
"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 pounds 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 said there was no change in group dividend policy "at this stage". Many analysts expect a dividend cut when a decision is made at the end of March.
Like-for-like general merchandise sales, which include clothing and homewares, were down 8.9 percent in Britain, while food sales on the same basis were down 5.2 percent, M&S said.
M&S shares have underperformed the DJ Stoxx European retail index by 50 percent last year. They closed at 238.75 pence on Tuesday, valuing the firm at 3.6 billion pounds.
