40 per cent of FSTE-listed retailers issue profit warnings

Almost 40 per cent of FSTE-listed retailers have issued profit warnings in the past 12 months amid the cost living crisis, according to new data from EY-Parthenon.

A study from the consulting and auditing firm revealed that profit warnings issued by UK-listed companies across all industries increased 66 per cent in the first half of 2022, with over half citing rising costs.

However, retail was singled out as being particularly badly affected. Half of all the profit warnings issued in the first half of 2022 by UK-listed companies came from consumer-facing sectors, compared with a third in the same period in 2021.

FTSE retailers issued 16 profit warnings in H1 2022, compared with ten warnings in H1 2021.

Three-quarters of the FTSE Retailers that issued a warning in the first half of 2022 came from companies which operate exclusively or mostly online, the study found.

Analysis published alongside the report’s findings stated: “These companies have been particularly affected by the shift in sales back to ‘bricks and mortar’ stores and were disproportionately affected by increasing delivery costs and product returns.”

Meanwhile warnings in the FTSE personal care, drug and grocery stores sector reached a record high of 13. Over half of the FTSE personal care, drug and grocery stores companies issued profit warnings in the last 12 months.

The consultancy and audit giant reported that in total UK-listed companies across all industries issued 136 warnings in the first half of this year, up from 82 in the first half of 2021.

In the second quarter of 2022, 64 warnings were issued, down slightly from the 72 issued in the first quarter but still 10 per cent above the pre-pandemic average and double the 32 warnings issued in the second quarter of 2021.

Of all the warnings issued in Q2 2022, a record 58 per cent of companies cited rising costs as one of the main reasons behind the warning, up from 43 per cent in Q1, while 19 per cent noted labour market issues.

In total, of the 1,222 UK-listed companies, 70 have issued at least two consecutive warnings in the last twelve months.

On average, one-in-five companies delist within a year of their third warning, most due to insolvency.

Amber Mace, UK&I consumer products & retail sector leader, said: “Consumers carried record levels of savings, built up over the pandemic, into 2022. This initially supported sales, but rising prices and a gloomier outlook have held back demand and consumer confidence since then.

"Our recent EY Future Consumer Index found that 37 per cent of low- and middle-income consumers are now only purchasing the essentials, compared to 26 per cent in February 2022.”

She explained:“The data underlines the significant difficulty companies face when trying to pass price increases on to consumers who are reducing their spending levels, which, in turn, is creating tensions along the supply chain and leading to high levels of unsold stock.”

“Companies which are managing to weather the storm are those which have a strong focus on demand optimisation and are responding to the needs of their customers by providing value for money and sustainable options.

"They are also developing robust plans to manage cost inflation and have strong processes in place around cash management and inventory visibility to minimise costly write-offs," she added.

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