M&S underlying sales fall and to cut investment

By Mark Potter and James Davey

LONDON (Reuters) - Marks & Spencer (MKS.L) 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 retailing said on Thursday like-for-like general merchandise sales, which span clothing and homewares, fell 6.4 percent in the 13 weeks to September 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.

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."