Poor clothing sales stall recovery at Marks & Spencer

The recovery of Marks & Spencer suffered a setback yesterday when it revealed weaker-than-expected sales with the performance in children's clothing particularly poor. The UK's biggest clothing retailer saw its shares fall 5 per cent to 280.75p even though the company said it had maintained market share and that full-year profits would be at the top end of expectations.

Roger Holmes, the chief executive, said sales in London had been particularly badly affected due to the impact of the congestion charge and the closure of the Central Line as well as uncertainty in the jobs market in the capital and fears over the outlook for property prices. He said consumers were acting more cautiously across the country.

In the 11 weeks to 29 March group like-for-like sales were up just 1 per cent on the same period last year. This included a fall of 0.3 per cent in general merchandise, which includes the key clothing division. However, Mr Holmes said general merchandise sales in London were down 8 per cent.

"We were expecting a slowdown in the market because last year was exceptional but it has been more marked than we expected," Mr Holmes said.

However, he added that the late timing of Easter and the geopolitical situation meant it was too early to say whether the slowdown meant the group would have to lower its forecasts of 3 to 5 per cent underlying growth in the UK clothing market this year. "It's difficult to call at the moment," he commented. "We would like to get into April and May before revising anything we've said before. But people are being more cautious."

Children's' clothing continued to be a weak area despite good performances in the new David Beckham ranges and in school clothing. M&S has already changed the management at the division but in fashion it continued to be outgunned by rivals such as Next and supermarkets such as Tesco and Asda. "We've still got a lot to do," Mr Holmes said.

Food outperformed the market with like-for-like sales up 2.6 per cent.

The trading statement disappointed City analysts. Merrill Lynch, which has a "sell" stance on the shares, said in a research note: "M&S will need to invest a much greater part of future sourcing gains in offering better value to customers or it will risk losing market share. We believe the longer-term growth argument lacks credibility."

It has cut its full-year forecast from £700m to £665m compared with a range in the market of £680m to £710m.

"It's not looking good," Amanda Large, an analyst with Gerrard, said. "In clothing, we were looking for a gain in market share, and it was stable."

M&S said it still expects a further rise of about 1 per cent in its clothing margins. The move to its new Paddington Basin head office next year will cost about £35m.