Marks and Spencer's shares tank after warning by new boss Steve Rowe

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Marks & Spencer had its worst day on the stock market for seven years today as new chief executive Steve Rowe warned that turning around its struggling clothing arm would hit profits. 

The company slumped 8% or 34.9p at 409.9p — wiping £500 million off the chain’s value in its biggest slump since 2009 — as Rowe said the difficult trading conditions, alongside efforts to offer permanently lower prices and end periodic sales blitzes, would have “an adverse impact on profit in the short term”.

Overall profits ticked up rose 4% to £689.6 million in the 53 weeks to April 2 but Rowe threw the kitchen sink at the clothing and home department, which has suffered five years of near-constant sales declines. Same-store sales in the division were down 2.7% in the latest quarter.

Rowe (pictured), who began work at the retailer as a Saturday boy in Croydon and replaced Marc Bolland in the top job this year, said clothing ranges would focus on “everyday essentials” that have a “nod to fashion in an accessible way”.

Rowe is attempting to overhaul clothing in the face of a darkening economic climate which has seen rivals Next and John Lewis struggle.

He said that prices on around 30% of goods would be brought down in the coming months. 

This would allow the company to re-engage with its core customer, dubbed Mrs M&S, who is around 50 years old and makes around 18 visits a year to the company.

“There are times we have not paid enough attention to her but every time we do that we’ve seen a result in sales,” he said.

Elsewhere, M&S food sales edged up 0.2% and hundreds more Simply Food stores were in the pipeline. The UK stores estate and international business remained under review.

Cantor Fitzgerald described Rowe’s plan as “evolutionary rather than revolutionary” and said investors may be disappointed by a lack of concrete detail about his intentions.

Shore Capital’s Clive Black said he did not characterise Rowe as the man with the golden gun but he backed him “as more likely to succeed than not”. Investors saw the dividend rise 3.9% to 18.7p and also received a special dividend worth £75 million in the first half of the current financial year.

Some customer assistants in the capital were treated to a 15% pay rise, with hourly rates going up to £9.65 an hour.

However, M&S said it was proposing a change to “payment premiums”, such as scrapping higher Sunday pay and standardising special bank holiday rates and those for unsocial hours.

Rowe said the move aimed to simplify the organisation.

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May 26, 2016 |
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