UPDATE 1-Marks & Spencer sales fall ratchets up pressure on CEO

(Writes through, adds detail and background throughout)

LONDON, Jan 10 (Reuters) - Shares in Marks & Spencer

fell sharply on Thursday as investors reacted to poor non-food

Christmas sales, a slump that has cranked up the pressure on the

head of the British retailer.

Now in his final year of a three-year plan to make M&S an

international, multi-channel retailer, Chief Executive Marc

Bolland had on Wednesday reiterated his confidence that a new

management team, led by ex-food boss John Dixon, would deliver a

better performance at its general merchandise arm.

The group had announced sales of clothing, footwear and

homewares slumped 3.8 percent in the 13 weeks to Dec. 29 at UK

stores open more than a year, worse than expected and weak in

comparison to recent updates from rivals Next, John

Lewis and Debenhams.

M&S shares were down 4.3 percent to 354.80 pence by 1034,

even as shares in Tesco, Britain's biggest retailer,

rose after the company reported higher than expected sales.

Analyst reaction to the non-food sales performance ranged

from "disappointing" to "dreadful", with the common theme

centering on the rising pressure for Bolland and his general

merchandise team to deliver.

"M&S has disappointed investors many times and though the

reasons have varied (rain, Olympic distraction, buying mistakes,

competitor promotions etc) the conclusion seems increasingly

clear that customers are just not happy with M&S's product and

value," Espirito Santo analyst Caroline Gulliver said.

"Consequently the pressure is building on John Dixon,

Belinda Earl and Laura Wade-Gery to turn the business around,"

Gulliver added, referring to other senior executives.

LESS PROMOTION

Bolland, who said the non-food slump was in part due to a

decision to protect margins with less promotional offers, has

maintained the new team would not make a major impact until M&S

launches autumn/winter collections in July.

Seymour Pierce analysts said they believed Bolland, who

slashed M&S's three-year sales growth target in May, blaming the

recession, and reshaped the general merchandise management team

in July after the group's biggest quarterly sales drop in 3-1/2

years, would be given another year to put it right.

Group Finance Director Alan Stewart leapt to the defence of

his CEO on Wednesday, when Bolland was asked if he was

considering his position, telling reporters the Dutchman had the

board's support and shareholders were behind the strategy.

One unnamed top-10 investor echoed the latter sentiment.

"Some retailers attract rather more attention than other

businesses of their size, and also go through wider swings of

sentiment than is warranted by the underlying business. Marks is

just such a business," the investor told Reuters.

"They seem to have sacrificed general merchandise sales on

the altar of profitability, so bottom-line impact shouldn't be

too severe. Sentiment had probably got a bit ahead of itself and

the recent fall in the share price has probably cooled things to

a more sensible level," the investor added.

M&S, a mainstay of UK town centres and known for reasonably

priced but high-quality staples such as socks and underwear, did

see underlying UK food sales rise 0.3 percent.

Its results, which were for the third quarter, were due to

be published on Thursday morning but were leaked to Sky News

late Wednesday, forcing M&S to rush out the statement.

Analyst Nick Bubb said cost savings and its protected gross

margins meant full-year profit was unlikely to fall far below

the bottom of market estimates, which range from 641 million

pounds ($1.0 billion) to 700 million, according to M&S data.

($1 = 0.6247 British pounds)

(Additional reporting by Sinead Cruise, Sudip Kar-Gupta and

Arthur Fane; Editing by David Holmes)

Most Popular in Business