Home Business News 40% of FTSE retailers issued profit warnings in 2023

40% of FTSE retailers issued profit warnings in 2023

by Amy Johnson LLB Finance Reporter
1st Feb 24 10:57 am

Companies listed in the UK FTSE Retailers sector issued 24 profit warnings in 2023, a third (12) fewer than the 36 issued in 2022, according to EY-Parthenon’s latest Profit Warnings report.

While 2023 saw a fall in the number of warnings issued by the retail sector compared to 2022, 40% of FTSE Retailers issued a profit warning last year.

Profit warnings issued by FTSE Retailers fell year-on-year at the start of 2023 but surged towards the final quarter as nine retailers issued warnings in Q4 2023 – the same number as in Q4 2022.

This reflects a difficult run-in to the Christmas trading period as events such as Black Friday and post-Christmas sales failed to have the desired impact on sales volumes. Fashion retailers were particularly affected and were behind over half (5) of the warnings issued during this period as ongoing concerns about inflation, high interest rates and high energy costs continued to put pressure on consumer discretionary spending.

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 rising 6.8% in the three months to December.

Silvia Rindone, EY UK&I Retail Lead, said, “Despite the easing strain on disposable incomes, consumers are maintaining discretion when it comes to retail purchases. While household income is expected to comfortably outpace inflation in 2024, consumers are still under significant pressure after a year of prices rising quicker than wages.

“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.

As consumer confidence remains subdued, retailers will once again need to adapt their proposition and understand their customers’ priorities. Businesses that are already doing this are starting to see an increase in their market share.”

National warnings higher than peak of 2008 financial crisis

Nationally, the percentage of UK-listed companies issuing profit warnings in 2023 exceeded the levels seen at the peak of the financial crisis in 2008, with 18.2% of public firms issued warnings.

In total, 294 profit warnings were issued in 2023, a small decrease of 11 from 2022 when 305 warnings were given. But the percentage of companies warning was still exceptionally high at 18.2%, higher than 17.7% at the peak of the global financial crisis in 2008.

Last year, over a quarter of warnings (26%) were attributed to delayed contracts or decisions, 19% were due to increased costs and a further 19% cited the impact of higher interest rates.

In Q4 2023, 77 warnings were issued versus 76 in the prior quarter. Cost pressures appeared to ease towards the end of 2023, causing just 10% of warnings in Q4 compared to 41% in the same period the year before.

However, corporate spending delays and higher interest rates became an increasing issue in 2023, with the latter prompting 24% of profit warnings in H2 2023, compared with 14% in the first half of the year.

Smaller companies, which are more vulnerable to demand and margin pressures, dominated warnings at the start of the 2023. However, by Q4 pressure had broadened as a third of the companies warning (33%) had annual revenues of over £1 billion, more than double the average number of warnings given by businesses of this size.

Jo Robinson, EY-Parthenon Partner and UK&I Turnaround and Restructuring Strategy Leader, commented: “Pervasive uncertainty in 2023 created major challenges for businesses around earnings and forecasting, and this is reflected in the elevated number of profit warnings issued last year.

“While pressure around costs eased somewhat toward the year-end, the uptick in warnings caused by delays to business decisions and weak consumer confidence indicates an ongoing reluctance to commit to discretionary spending.

“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.”

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