* Clothing sales hit by strategy to cut prices, reducepromotions
* Food sales also go into decline
* New CEO says first quarter sales as expected (Adds additional comment from Rowe, shares)
By James Davey
LONDON, July 7 (Reuters) - Marks & Spencer sufferedits biggest fall in quarterly clothing sales since 2005 onThursday as a decision by new boss Steve Rowe to cut prices andoffer fewer promotions took its toll on the British retailer.
M&S said consumer confidence waned in the run up toBritain's European Union referendum last month but said it wastoo early to judge the implications of the Brexit vote and stuckto its financial guidance for the 2016-17 year.
"We're operating in uncertain times, consumer confidenceweakened in the run-up to the EU referendum and remainsfragile," Chief Executive Rowe told reporters, adding he had notnoted a further downturn in demand in response to the Brexitvote on June 23.
He has the tough task of reviving a 132-year-old Britishinstitution that has fallen out of fashion over the last decade.
Sales from the company's upmarket food business, itsstrongest performer in recent years, also went into reverse.
Rowe, a company veteran of 26 years, succeeded Marc Bollandas CEO in April and warned the following month that efforts toturn around its clothing business by cutting prices andimproving ranges would come at a cost to short term sales andprofit.
"Although these results are on the low side of where I wantthem to be, they are in line with our plans, it's what weexpected," he said.
Analysts were harsher in their verdict.
"The news is horrible," said independent retail analyst NickBubb.
Analysts at Liberum cut their 2016-17 pretax profit forecastby 4.6 percent. "It is hard to see that full-year (profit)consensus can do anything other than fall," they said.
M&S shares were almost 1.5 percent higher at 298.4 pence at1420 GMT.
They have fallen 31 percent over the last three months,hammered by the May profit warning and fears Britain's vote toleave the EU could dent consumer demand and increase sourcingcosts due to the depreciation of sterling.
Prior to Thursday's first quarter statement, analysts'average forecast for 2016-17 pretax profit was 622 millionpounds ($808 million), down from 690 million pounds made in2015-16.
CLOTHING COMPETITION
M&S said that over the 13 weeks to July 2, its fiscal firstquarter, sales of clothing and home products at stores open overa year fell 8.9 percent. It was M&S' worst quarterly performancesince the first quarter of its 2005-06 year.
Equivalent food sales fell 0.9 percent, worse than analystshad forecast although M&S said it still strongly outperformedthe wider food market.
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 cheaper prices.
ABF said on Thursday it would pursue expansion plans forPrimark across Europe and the United States.
Rowe said delaying M&S' summer sale from the first quarterto the second quarter and the removal of 28 promotions tookabout 5 percent off its like-for-like clothing sales.
The company also said it was pleased with initial resultsafter repricing around 1,000 lines since January.
The plunge in the value of the pound to 30-year lows versusthe U.S. dollar since the Brexit vote is another headache as itcould mean higher prices for imported goods.
Finance chief Helen Weir said M&S sources 1-1.5 billionpounds of goods in U.S. dollars, about 65 percent of overseassourcing.
Its policy is to hedge currency requirements up to 18 monthsahead. The firm is about 90 percent hedged for the 2016-17 yearand 80 percent hedged for spring/summer of the 2017-18 year.
"The main impact that we'll see will start to come throughin autumn/winter 2017...Clearly it depends on what happens tothe exchange rate," she said. ($1 = 0.7699 pounds) (Editing by Keith Weir)
Marks & Spencer (MKS)
