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* CEO Steve Rowe warns of short term profit hit
* Says fixing clothing will take time
* Says trading conditions difficult
* Shares fall up to 10 pct (Adds detail, CEO, investor comments)
By James Davey and Paul Sandle
LONDON, May 25 (Reuters) - A warning from Marks & Spencer's new boss of a short-term profit hit from efforts to turnaround its clothing business by cutting prices and improvingranges hammered its shares on Wednesday.
Steve Rowe, a 26-year M&S veteran, replaced Marc Bolland asCEO of the 132-year-old British retailer last month with a remitto revive clothing and homeware, which contributes about 60percent of profit but has seen five years of falling sales.
Rowe said he would focus on the retailer's most loyalcustomer, a 50-year-old woman he described as "Mrs M&S", who hadbeen neglected in the pursuit of younger, more fashion-consciousshoppers.
"We're committed to celebrating and cherishing her and we'relistening to her," he said.
His warning that it would take time for customers to noticeimprovements and return to M&S stores to buy products other thanits successful food ranges, combined with the impact on itsmargin forecast worried investors, who endured severalturnaround false dawns during Bolland's six years in charge.
M&S shares, already down a quarter this year, fell up to afurther 10 percent.
M&S, which has long been Britain's biggest clothingretailer, has seen its market share eroded by rivals like Next and a push from supermarkets into clothing, whileyounger shoppers favour Primark and H&M's cheapprices and more fashionable clothes or online stores like ASOS.
M&S's share of Britain's clothing and footwear market fellfrom 13.9 percent in 1997 to 10.3 percent in 2014-15.
Rowe's plan is to drive improvements in the quality, fit andavailability of M&S's ranges, while lowering prices and reducingthe proportion of sales on promotion.
Prices will be cut by about 10 percent on one third ofsummer ranges, while the number of product lines will be cut by10 percent. Customer service will be improved with more shopfloor staff, which requires investment.
That and the combination of difficult trading conditions,both in the UK and overseas "will have an adverse effect onprofit in the short term," said Rowe.
Some analysts were sceptical. "There is no easy fix for thegeneral merchandise business," said Freddie George at brokerCantor Fitzgerald, who has a "sell" rating on M&S.
GIVE HIM TIME
However, one of M&S's top 10 investors, who spoke on thecondition of anonymity, said it was supportive of Rowe'sstrategy and willing to give him time.
Richard Marwood, manager of the UK Growth Fund at RoyalLondon Asset Management, another M&S investor, highlighted itsappealing dividend yield.
"If some of these plans can bear fruit and drive earningsgrowth from here, that could be quite an attractive combinationin terms of total shareholder return."
Rowe declined to put a time frame on recovery but noted: "Ifeveryone of our (32 million) customers ... shopped at M&S justone more time a year, this would put an additional half abillion pounds into our tills."
He forecast sales trends this year would be similar to last,when like-for-like sales in clothing and homeware fell 2.9percent.
Lower prices, and currency pressure, would also limit animprovement in the gross margin to 50-100 basis points. This wasbelow expectations and further unnerved the market after Bollandhad made big strides in boosting margins.
Analysts at UBS said the guidance implied a 10 percentdowngrade to consensus profit forecasts, which prior toWednesday's update were 710 and 744 million pounds for 2016-17and 2017-18 respectively.
M&S's underlying pretax profit rose 4.3 percent to 689.6million pounds in 2015-16, beating analysts' forecasts, onrevenue up 2.4 percent to 10.6 billion pounds.
Rowe said M&S's other big strategic issues, including thesize of its UK store estate and international plans, would beaddressed in the autumn.
($1 = 0.6794 pounds) (Additional reporting by Kate Holton; Editing by AlexanderSmith and Mark Potter)
