40% of FTSE retailers problem revenue warnings amid shopper squeeze

Two-fifths of FTSE-listed retailers issued revenue warnings final 12 months as shopper weak spot and excessive prices weighed on gross sales, new information exhibits.  

A string of well-known London-listed retailers, together with Superdry, Dr Martens and B&Q proprietor Kingfisher, issued warnings over earnings in 2023.

Profit warnings issued by FTSE retailers fell year-on-year at first of 2023, however swelled in the direction of the ultimate quarter. 

Nine retailers issued warnings within the ultimate quarter, which is identical quantity by the identical level in 2022, in keeping with the EY-Parthenon analysis.

Silvia Rindone, EY UK and Ireland retail lead, stated: ‘Cost pressures stay comparatively excessive for retailers, with additional challenges set to come up in April with the proposed improve in enterprise charges and the influence of ongoing geopolitical disruption on provide chains.’

Profit warnings: Superdry issued quite a lot of revenue warnings in 2023

Speaking to This is Money, Richard Hunter, head of markets at Interactive Investor, stated retailer revenue warnings emerged as stress on shopper spending ‘intensified’. 

He added: ‘The value of residing disaster, increased rates of interest and elevated prices, particularly inflation, resulted in customers battening down the hatches. 

‘As such, discretionary spending got here below stress, with the exception, it might appear, of vacation expenditure, and this inevitably had a knock-on impact to retailers specifically.

‘At the identical time, many corporations had been additionally coping with elevated prices on these lowered revenues. Supply chain disruptions, exacerbated by the most recent battle within the Middle East, added to additional wage prices as the dimensions of pay rises tried to maintain up with the tempo of inflation.

‘The prospect that rates of interest have now peaked and ought to be lowered sooner or later this 12 months might alleviate a few of this stress, whereas shopper sentiment has remained moderately sturdy. 

Turbulence: This month, Dr Martens stated its gross sales fell by greater than a fifth within the ultimate quarter of 2023

‘Even so, progress within the UK is predicted to be anemic this 12 months, that means that some corporations will nonetheless want to chop their fabric accordingly. 

‘The present spherical of buying and selling updates is being colored by festive spending, so the following few months might be pivotal in figuring out precisely how corporations are faring within the present surroundings.’

EY-Parthenon stated style retailers had been notably affected and behind over half of the revenue warnings issued throughout this era.

Fashion retailers have been hampered ongoing issues about inflation and excessive rates of interest, whereas power prices additionally continued to place stress on shopper discretionary spending. 

After posting quite a lot of revenue warnings final 12 months, this month Dr Martens stated gross sales slumped by greater than a fifth within the ultimate quarter of 2023, amid decrease wholesale orders and Red Sea delivery delays. The retailer’s share value has fallen over 46 per cent within the final 12 months.

Beyond simply retailers, EY-Parthenon stated 294 revenue warnings had been issued by companies in 2023, representing 18.2 per cent of all UK listed corporations. 

The FTSE private care, drug and grocery shops sector, which incorporates supermarkets, noticed simply three revenue warnings in 2023, down from 16 in 2022, with meals gross sales climbing 6.8 per cent within the three months to December. 

Looking forward, EY-Parthenon accomplice Jo Robinson stated: ‘In 2024, companies will hope for a quicker-than-expected fall in inflation and rates of interest, however many shifting elements want to maneuver into place earlier than we may be positive of an financial “soft landing”. 

‘We anticipate to see rising disparity between companies which can be positioned to capitalise on nonetheless restricted progress and people which can be hampered by the influence of current earnings pressures or their entry to and the price of capital. It is shaping as much as be a better 12 months for a lot of, however not all UK corporations.’

The EY Item Club expects shopper spending progress to rise to 0.9 per cent in 2024, up from 0.7 per cent projected within the Autumn Forecast and 0.6 per cent estimated progress in 2023. 

On Thursday, the Bank of England opted as soon as once more to carry the bottom fee at 5.25 per cent.

The determination marks its fourth pause in a row, after the Monetary Policy Committee (MPC) voted to carry the bottom fee first in September, after which in November and December.

Two members of the MPC needed to extend the financial institution fee to five.5 per cent, one member needed it reduce to five per cent and 6 had been in favour of sustaining them at 5.25 per cent.