Marks & Spencer Group PLC (LON:MKS) said a squeezed consumer led to a decline in food sales and warm weather in October hurt clothing sales in Christmas trading.
The retailer reported a 1.4% drop in total UK like-for-like sales to £2.8bn in the 13 weeks to December 30.
Shares fell 4.6% to 309p in morning trading.
In the upmarket grocery arm, like-for-like food sales dipped 0.4% to £1.6bn as hard-hit consumers tightened their purse strings, though price investment before Christmas and a strong performance from seasonal lines buoyed late trading.
Higher inflation – fuelled by slump in the pound following the Brexit vote – and weak wage growth have weighed on households’ disposable incomes.
Weak clothing market
A slowdown in consumer spending has hit the UK retail market, adding pressure on the company’s already struggling clothing division.
Like-for-like sales in the clothing and home business fell 2.8% to £1.2bn during the 13-week period.
Under chief executive Steve Rowe’s leadership, M&S has been working to turnaround the clothing division by improving ranges and lowering prices.
The strategy helped clothing revenue to rise in-store and online in the weeks leading up to Christmas without having to discount items in a highly promotional market.
However, an unseasonably warm October resulted in an overall decrease, meaning M&S carried more stock into its December sale.
International revenue fell 9.8% to £309mln as the company completed the planned closure of loss-making stores.
Group sales edged down 0.1% to £3.1bn.
Full year forecast unchanged
M&S left its full-year guidance unchanged.
"M&S had a mixed quarter with better Christmas trading in both businesses going some way to offset a weak clothing market in October and ongoing underperformance in our Food like-for-like sales,” said Rowe.
“We continue with the accelerated transformation programme we outlined in November and have recently taken several important steps to reshape the business for the future.
“These include a new technology partnership and organisation, and the sale of our Hong Kong based business in line with the streamlined franchise-led model we are adopting for International."
What analysts think
Neil Wilson, senior market analyst at ETX Capital, said: "As expected Marks and Spencer suffered a bad fall in sales over the Christmas quarter - badly lagging competitors on all fronts - and as such there could be serious question marks over Steve Rowe’s turnaround strategy."
He added: "Food is the worry – it’s been the easy win for M&S for years but suffered a -0.4% LFL decline. Other grocers registered solid increases and crucially may be eating into M&S’s premium niche – we have seen strong performances for Morrison’s, Sainsbury’s and Tesco’s premium ranges. And Waitrose – probably its closest apples-to-apples rival in food - saw LFL sales +1.5% (or +2.2% if you factor in New Year’s Eve). Food store expansion will stay on hold."
Liberum repeated a 'sell' rating on the stock, saying the success of the turnaround strategy remains uncertain with a backdrop of structural pressures persisting.
"Any turnaround will be a tough and lengthy process given the structural issues that the business continues to face," it said.