M&S says downturn to last longer

By Mark Potter

LONDON (Reuters) - Marks and Spencer issued a shock profit warning and said the consumer downturn was likely to be deeper and last longer than previously expected, sending its shares plunging 25 percent to a near seven-year low.

The clothes, food and homewares group said on Wednesday sales at UK stores open over a year fell 5.3 percent in the 13 weeks to June 28 and its upmarket food business had lost market share 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 one year in the job and that it would look at more initiatives like its "Dine In for 10 pounds" campaign to lure back custom.

The sales plunge, which Executive Chairman Stuart Rose described as "effectively an earnings downgrade", heaps pressure on Rose a week before a shareholder vote to confirm his move up from chief executive, against corporate governance guidelines.

"Regrettably we feel that the credibility of senior management has been irreparably damaged by both the degree of profit erosion ... and the lack of any clear idea from management that they have a grip of problems," Credit Suisse analysts said in a research note.

Rose told reporters he was very confident of being approved as executive chairman, and said other retailers would follow suit with profit warnings.

"I can't believe this is a Marks & Spencer (M&S) exclusive problem, I think this is definitely a retail slowdown and we don't know where it's going," he said on a conference call.

Kaupthing analysts agreed, and shares in rivals such as clothing group Next and supermarket chain J Sainsbury also fell.