However, the 131-year-old mainstay of Britain's shopping streets said it remained on track to grow profit margins this year, a key target for its general merchandise business, while its food business continued to outperform the wider grocery market.

Shares in M&S have risen by a quarter over the last year on hopes the billions of pounds spent by Marc Bolland, chief executive since 2010, on revamped products, stores, logistics and the website will pay off.

But they fell up to 2.1 percent on Tuesday as M&S gave an update on trading and then hosted about 700 investors at its annual meeting at London's Wembley Stadium.

"Whilst it is disappointing that management has not been able to sustain the positive general merchandise trading momentum ... we are reasonably comfortable that the slowdown broadly reflects slowing market conditions in UK apparel," said Shore Capital analysts, who have a 'buy' rating on the stock.

M&S kept its guidance for the 2015-16 financial year, including growing gross margins in the general merchandise business by 1.5 to 2 percentage points.

Bolland, who saw 6 percent of votes cast at the AGM oppose his re-election as a director, has stressed his non-food strategy is primarily to focus on gross margins, the difference between the price it buys goods and the price it sells them, through improvements in M&S' sourcing operations, rather than through driving sales growth.

"What we have said very consistently is the priority is on gross margin and we're delivering," he told reporters, repeating a forecast of flat to modest growth in general merchandise sales for the full year.

Some analysts, however, remain concerned.

"Increasing gross margins alone is not a source of long-term growth," said Credit Suisse analysts, who have an 'underperform' rating on M&S shares and note a firmer U.S. dollar could hurt clothing retailers' margins in future quarters. Many fashion retailers buy goods from factories in Asia, priced in dollars.

M&S said general merchandise sales at stores open over a year fell 0.4 percent in the 13 weeks to June 27, better than analysts' average forecast for a 1 percent decline, but below 0.7 percent growth in the previous quarter -- the division's first growth in nearly four years.

Bolland said an unseasonally cool May hit the whole industry, leading to widespread promotions in June.

Official data, published last month, attributed a sharp slowdown in British retail sales growth in May to shoppers buying fewer clothes.

Bolland said customers were recognising M&S' moves to improve the quality and style of its clothing and highlighted growth of 38.7 percent at M&S.com, re-launched last year.

But at the investor meeting some did not share his optimism.

"I could weep when I see what's in stores today. Where is the originality, where is the flair, where is the newness and where is the good taste,?" said Mrs Conway, a retired M&S fashion designer, drawing warm applause.

M&S' food business, which contributes over half of group sales and about one third of profit, posted a 0.3 percent rise in like-for-like sales, a 23rd straight quarterly increase that was in line with forecasts.

In May M&S reported a rise in annual profit for the first time in four years and analysts are forecasting another increase for 2015-16.

(Editing by Mark Potter and David Evans)

By James Davey