London, Sept 26 - Marks & Spencer is expected to report a deterioration in trading during its second quarter, piling fresh pressure on the British clothing, food and homewares retailer to spell out a clear recovery strategy.
Investors will be looking for signs of whether the 114-year-old mainstay of Britain's shopping streets will rein in spending plans, even as it opens its first store in mainland China, amid fears it may have to cut its dividend next year.
Marks and Spencer (M&S) shares have slumped about 60 percent this year and were savaged after a profit warning in July when the group said it was suffering from a consumer downturn and mistakes at its food business.
Analysts believe that, if anything, trading conditions have got worse since then.
Britons are cutting back on spending amid higher food and fuel costs, sliding house prices and an uncertain economic outlook, and M&S's upmarket food business has been particularly vulnerable as shoppers trade down to cheaper alternatives.
Like-for-like general merchandise sales, which includes clothes and homewares, are expected to have fallen 6.4 percent in the second quarter, after a 6.2 percent decline in the first, according to a Reuters poll of seven analysts.
M&S, which says more than 21 million people visit its 600-plus British stores every week, is the country's biggest clothing retailer, with a market share of about 12 percent.
Like-for-like food sales are forecast to have dropped 6.6 percent, after a 4.5 percent fall in the first quarter.
Analysts say there have been some signs of improvement in the business, with steps to improve availability in food and more promotions. But many want more drastic action and have cut their full-year profit forecasts still further in recent days.
"Our concern is ... that we cannot see initiatives under way to get M&S back on track," Deutsche Bank analysts wrote in a recent research note.
In particular, analysts are keen for signs whether the group will rein in capital spending in order to protect its dividend.
Societe Generale analysts see scope for spending to be scaled back to 700 million pounds ($1.3 billion) from their previous forecast of 850 million, and then cut to 500 million pounds next year.
However, Morgan Stanley analysts believe the dividend could be "under serious threat" next year.
M&S's trading update on Thursday is due to coincide with the opening of its first store in mainland China.
Analysts currently expect M&S to make a profit before tax and one-off items of 694 million pounds for the year ending March 2009, down from 1 billion the year before and compared with an average forecast of 1.15 billion just nine months ago.
M&S shares have underperformed the DJ Stoxx European Retail Index by 49 percent over the past year. They trade at 7.1 times forecast earnings, versus a sector average of 12.5, signalling investors fear forecasts will fall further.
Of the 25 analysts polled by Reuters Estimates, four have a "buy" rating on the stock, 12 a "hold," five an "underperform" and four a "sell."