Retail sector profit warnings hit seven-year high

UK quoted companies issued 73 profit warnings in Q1 2018, two fewer than the same quarter of 2017 and 10% less than the previous quarter, but warnings from the beleaguered retail sector hitting a seven-year high, according to research by EY which says companies need to adapt to a new economy to survive

The firm’s latest profit warnings report identifies 13 profit warnings from almost a fifth (18%) of companies in the FTSE general retailers sector in Q1 2018, the highest of any sector, which it says points to the sector feeling the full force of the adverse headwinds battering the high street. In the year to date, 41% of FTSE general retailers have issued a profit warning.

Cost and competitive pressures remain high on the agenda, cited in 32% of warnings, including over half of FTSE general retailers and all three FTSE household goods warnings. Ten warnings cited adverse exchange rates in Q1 2018, a post-EU referendum high.

Alan Hudson, EY’s head of restructuring for UK & Ireland, said: ‘The exceptionally high number of retail profit warnings is a worrying omen. Cyclical and structural pressures are once again colliding to reshape the UK’s high street.

‘Where the structural challenge is greatest, we expect to see sharper divides emerge between those who have grasped new realities and those left behind in the old economy.’

The FTSE travel and leisure sector issued its highest number of profit warnings since the financial crisis in 2017, with most warnings coming from restaurants and bars.

Hudson said: ‘The restaurant sector faces a perfect storm of declining consumer spending, an exceptionally crowded market place, especially in casual dining, as well as rising costs in food and labour. The loss of margin to online delivery further compounds the squeeze.

‘Some companies are weathering the storm well. But, those with high operating and financial leverage are struggling to match their investment cases and service their debts. Troubled companies also face a lack of viable turnaround options.’

Report by Pat Sweet

Pat Sweet |Reporter, Accountancy Daily [2010-2021]

Pat Sweet was the former online reporter at Accountancy Daily and contributor to the monthly Accountancy magazine, pub...

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