Home Market Retailers under pressure as profit warnings double to seven-year high

Retailers under pressure as profit warnings double to seven-year high

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The number of FTSE-listed companies issuing profit warnings rose by 13 to 58 in the second quarter, an increase of 29 per cent compared to the same period last year, according to an EY report published today.

The rise was led by the retail sector of the FTSE index, where profit warnings for the first half of the year doubled to 20 compared to H1 2017 – setting a seven-year high.

Among the retailers who've issued profit warnings this year are Debenhams, Moss Bros, Carpetright, and Card Factory. Many of these issued profit warnings following a bad Christmas spending season.

Read more: Debenhams has had three profit warnings in a year – could Mike Ashley help?

This year has also seen a rise in the an insolvency procedure known as Company Voluntary Arrangement (CVAs). There have been thousands of job losses this year as companies including non-listed retailers such as New Look and House of Fraser have issued CVAs and closed stores.

While the warm summer has boosted consumer spending, enduring downside risks at home and abroad have hurt the sector, explained Alan Hudson, EYs head of restructuring.

“At the same time, the retail revolution continues to reshape the high-street and operational models, leaving more companies in its wake,” he added.

Construction and materials was also under pressure, with six profit warnings in the first half of the year, due to the cold winter and a questionable outlook.

The latest EY Profit Warnings report raised broader concerns about the problems facing the UK economy. It said that more profit warnings were being seen as structural and not as one-off events. It also found a worrying rise in the number of new companies issuing profit warnings: 65 per cent of firms who issued a warning in Q2 had not done so in the previous year. Thats compared to 58 per cent in Q1.

The number of companies issuing profit warnings is likely to rise, as uncertainty over the future slows down decision-making, according to Hudson.

“The proportion of profit warnings citing delayed or cancelled contracts reached a six-year high in 2018. Many companies cannot say with any certainty what trading and regulatory regimes theyll be operating under this time next year.

“UK growth and the global recovery are still in evidence, but both face risks as threats multiply. A rise in restructurings and profit warnings, as well as sharper investor reactions to those warnings, underscore that we face a more precarious earnings outlook.”

Read more: DFS shares tumble after profit warning

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