Two-fifths of FTSE-listed retailers issued profit warnings last year as consumer weakness and high costs weighed on sales, new data shows.
A string of well-known London-listed retailers, including Superdry, Dr Martens and B&Q owner Kingfisher, issued warnings over profits in 2023.
Profit warnings issued by FTSE retailers fell year-on-year at the start of 2023, but swelled towards the final quarter.
Nine retailers issued warnings in the final quarter, which is the same number by the same point in 2022, according to the EY-Parthenon research.
Silvia Rindone, EY UK and Ireland retail lead, said: ‘Cost pressures remain relatively high for retailers, with further challenges set to arise in April with the proposed increase in business rates and the impact of ongoing geopolitical disruption on supply chains.’
Profit warnings: Superdry issued a number of profit warnings in 2023
Speaking to This is Money, Richard Hunter, head of markets at Interactive Investor, said retailer profit warnings emerged as pressure on consumer spending ‘intensified’.
He added: ‘The cost of living crisis, higher interest rates and elevated costs, especially inflation, resulted in consumers battening down the hatches.
‘As such, discretionary spending came under pressure, with the exception, it would seem, of holiday expenditure, and this inevitably had a knock-on effect to retailers in particular.
‘At the same time, many companies were also dealing with increased costs on these reduced revenues. Supply chain disruptions, exacerbated by the latest conflict in the Middle East, added to extra wage costs as the scale of pay rises tried to keep up with the pace of inflation.
‘The prospect that interest rates have now peaked and should be reduced at some point this year may alleviate some of this pressure, while consumer sentiment has remained reasonably robust.
Turbulence: This month, Dr Martens said its sales fell by more than a fifth in the final quarter of 2023
‘Even so, growth in the UK is expected to be anemic this year, meaning that some companies will still need to cut their cloth accordingly.
‘The current round of trading updates is being coloured by festive spending, so the next few months will be pivotal in determining exactly how companies are faring in the current environment.’
EY-Parthenon said fashion retailers were particularly affected and behind over half of the profit warnings issued during this period.
Fashion retailers have been hampered ongoing concerns about inflation and high interest rates, while energy costs also continued to put pressure on consumer discretionary spending.
After posting a number of profit warnings last year, this month Dr Martens said sales slumped by more than a fifth in the final quarter of 2023, amid lower wholesale orders and Red Sea shipping delays. The retailer’s share price has fallen over 46 per cent in the last year.
Beyond just retailers, EY-Parthenon said 294 profit warnings were issued by businesses in 2023, representing 18.2 per cent of all UK listed companies.
The FTSE personal care, drug and grocery stores sector, which includes supermarkets, saw just three profit warnings in 2023, down from 16 in 2022, with food sales climbing 6.8 per cent in the three months to December.
Looking ahead, EY-Parthenon partner Jo Robinson said: ‘In 2024, businesses will hope for a quicker-than-expected fall in inflation and interest rates, but many moving parts need to move into place before we can be sure of an economic “soft landing”.
‘We expect to see increasing disparity between businesses that are positioned to capitalise on still limited growth and those that are hampered by the impact of recent earnings pressures or their access to and the cost of capital. It is shaping up to be an easier year for many, but not all UK companies.’
The EY Item Club expects consumer spending growth to rise to 0.9 per cent in 2024, up from 0.7 per cent projected in the Autumn Forecast and 0.6 per cent estimated growth in 2023.
On Thursday, the Bank of England opted once again to hold the base rate at 5.25 per cent.
The decision marks its fourth pause in a row, after the Monetary Policy Committee (MPC) voted to hold the base rate first in September, and then in November and December.
Two members of the MPC wanted to increase the bank rate to 5.5 per cent, one member wanted it cut to 5 per cent and six were in favour of maintaining them at 5.25 per cent.
Some links in this article may be affiliate links. If you click on them we may earn a small commission. That helps us fund This Is Money, and keep it free to use. We do not write articles to promote products. We do not allow any commercial relationship to affect our editorial independence.
