Only five UK retailers issued profit warnings in first leg of 2023, but experts warn of challenges
Only five UK retailers raised concerns about their profits in the first leg of 2023. However, the sector has warned that challenges remain for shops and the high street.
According to data by accountancy firm EY, the number of profit warnings issued by retailers fell by 44 per cent in quarter one compared to the last quarter of 2022 – when the figure stood at nine.
It comes as prominent British retailers such as Curry’s and Sainsbury’s posted “better than expected” revenues over the Christmas and new year period despite soaring inflationary costs.
However, analysts at EY have warned that retail remains “delicate” as some 30 per cent of listed retailers have issued two or more profit warnings since the start of 2022, well above the eight per cent all-sector total.
Silvia Rindone, EY UK&I retail lead, said: “Retailers enjoyed a better-than-expected earnings season during 2022’s festive period. However, this was a relative success given how far forecasts had fallen during 2022.”
Furthermore, data showed that of the consumer sector companies that moved into the ‘three warning’ danger area since the start of 2022, 30 per cent have gone into administration or have been put up for sale.
At the start of the year, Paperchase collapsed into administration and closed 106 branches. Its intellectual property was acquired by Tesco.
Moreover, embattled fashion brand Joules was also rescued by Next in a £34m deal, last December, as was Made.com which the retailer snapped up for £3m following its collapse.
“Survival of the fittest has rarely been more appropriate in a retail sector which has had to battle with the fallout from the pandemic, supply chain issues, pressured consumers and typically fierce competition,” Richard Hunter, head of markets at Interactive Investor said.
“However, the likes of Next, Tesco, Primark-owner Associated British Foods and Sainsbury’s not only reported strong sales around the festive period, but are also seeing benefits from their scale. In addition, the likes of Tesco (Paperchase) and Next (Made.com and Joules) have made selective additions to their portfolios as smaller retailers have reluctantly had to throw in the towel.”
He added: “At the same time, none of the retailers have shied away from the issues which are likely to persist in the UK economy for the remainder of the year and have for the most part issued very cautious guidance on their outlook.
“High inflation and rising interest rates are putting severe cost pressures on some consumers, who are increasingly reining in on discretionary spending.
“Only the largest of the retailers and supermarkets are able to minimise passing on increased costs by absorbing some of the inflationary pain, meaning that the next 12 months is likely to see a continuation of smaller retailers needing to admit defeat.”