- EY-Parthenon report reveals that over the last 12 months 18.7% of all UK-listed companies issued a profit warning
- FTSE Retailers issued seven profit warnings in Q1 2024 – two more than the same period in 2023
- One-in-three profit warnings in Q1 2024 were from companies in Consumer Discretionary sectors
UK-listed companies in the FTSE Retailers sector issued seven profit warnings in Q1 2024, two more than the same period (January-March) in 2023, according to EY-Parthenon’s latest Profit Warnings report.
The continued strain on disposable income caused by the cost-of-living crisis has led to 41% of FTSE Retailers issuing a profit warning over the past 12 months. This pressure continues to impact the wider FTSE Consumer Discretionary group of companies, which issued the highest number of profit warnings (24) in Q1 of this year, accounting for 34% of all warnings during the period.
The biggest growth in warnings was seen in FTSE Personal Goods, where over 50% of the sector warned in Q1 2024 alone. Companies within the sector issued five warnings during the first quarter of the year – the highest number since the pandemic. In the last 12 months, two-thirds of the sector has issued a profit warning, compared with a third at the end of 2023, making it the sector with the highest percentage of companies warning and the fastest increase in the last three months. This increase reflects the spread of earnings pressures into the luxury goods sector and ongoing pressure on semi-durable goods, such as clothing, footwear and jewellery.
Silvia Rindone, EY UK&I Retail Lead, said: “While the strain on disposable incomes is easing slowly, the outlook for 2024 is looking more positive for retailers, with the EY ITEM Club forecasting consumer spending to rise by 0.7% this year.
“Retailers will be hoping that consumer confidence is buoyed as we enter the summer months, offsetting new cost pressures arising from increases in business rates and national living wage. Adaptability has been a key skill required by retailers over the past few years and, as the economy shows signs of recovery, businesses will need to employ this skill again, ensuring they too are transitioning to growth. While the economic outlook may be more positive, this does not mean retailers should become complacent. Consumers will still be facing their own pressures as they recover from the cost-of-living crisis. Retailers should continue to monitor strategic shifts in buying behaviour as over recent years shoppers have become increasingly savvier when looking for value money when making a purchase.”
Nearly one-in-five UK-listed companies have issued a profit warning in the last 12 months
Across all sectors, the number of profit warnings issued by UK listed companies fell 7% year-on-year to 70 in Q1 2024 and dropped slightly from Q4 2023, when 77 warnings were issued. Despite the quarterly fall in warnings, the number of companies warning for the first time in 12 months reached its highest level since Q1 2022, with 61% of companies in Q1 2024 issuing a ‘new’ warning.
By the end of the first quarter of 2024, 39 companies had issued three or more warnings over the last 12 months, with just over a fifth of these companies delisting – or in the process of doing so - due to insolvency or acquisition.
Contract cancellations and delays were cited as the main reason for warnings by 29% of companies, whilst higher costs and weaker consumer confidence each accounted for 17% of warnings in Q1 2024.
The FTSE Industrial Support Services sector, which encompasses business service providers, industrial suppliers, and recruitment companies, issued nine warnings in Q1 2024 and 18 warnings in the last six months, more than the whole of 2022, with the sector significantly impacted by falling business spending and recruitment, rising costs, and cancelled or amended contracts.
Companies in financial services sectors reported 11 warnings in Q1, which is the highest number since the pandemic, and before that, the Global Financial Crisis in 2008. The increase in warnings indicates challenges facing pockets of the financial industry, namely certain lenders exposed to auto finance and some parts of the wealth and asset management industry.
Meg Wilson, EY Partner, Turnaround and Restructuring Strategy, commented: “Sector stress and insolvency is rising, especially in mid-market retail. But there’s also a growing group of retailers that are meeting – and even beating forecasts. Low demand creates intense competition for a limited share of wallet, amplifying the advantage for retailers that have moved quickly and decisively to reshape their business.
“The data in EY’s latest Profit Warnings report underlines how integral swift action is to preserve value. Whilst the green shoots of recovery can be seen, retailers cannot afford to ignore the warning signs and rely on economic resurgence, particularly as we continue to navigate through an unprecedented period of uncertainty with forthcoming global elections and geopolitical risks still high on the agenda.
“Although this looks like an economically easier year on paper, retailers still need to be scenario planning as the macro-economic pressures we have seen over recent years are far from over.”
