City analysts downgrade profit forecasts for M&S

City analysts downgrade profit forecasts for M&S

M&S has not commented on the 2.8 per cent drop in sales, worrying city analysts. CSFB analyst Tony Shiret said food sales had gone pear-shaped. ”Sainsbury’s and Morrisons have got lots of problems and this should be allowing M&S to do much better.”

Some analysts suggested that the groups’ decision to cut 500 food lines might have flopped. One analyst said: “M&S has been slow to innovate and quick to increase prices for some time. There are so many new Waitrose stores and Tesco Express in town, M&S has been left with a real problem.”

It appears that M&S is facing structural challenges to its food business. Merrill Lynch analyst, Katherine Wynne said in a report to clients entitled, Downgrades Follow Food for Thought, said: “… food is the focus of concern with the trend slipping quite sharply over the past two weeks. The real issue seems to be better competition and not enough product innovation - not an easy challenge to address.

“The current head of food, Guy Farrant, was number two to Sainsbury’s Justin King, and is seen as a safe pair of hands, but more management may be needed.”

Merrill Lynch cut its current forecast for the retailer by £10 million to £725m profits before tax. The investment also slashed its full-year forecast for troubled Sainsbury’s, the third time in eight days, by £54m to £263m for the year-ending March 2005. Chief executive Justin King will reveal his business review of the supermarket next week.