FTSE-listed retailers issued 47 profit warnings in the first half of 2020, far exceeding the total number recorded in the sector in the whole of 2019 (32), according to EY’s latest Profit Warnings Report.

In the first quarter of this year, the professional services firm recorded 38 warnings in the FTSE retailers sector, followed by a further nine in the second quarter. Unsurprisingly, more than three quarters (36) of the warnings issued by listed retailers in the first half of the year cited COVID-19 as the reason for announcing a material downgrade to their profit expectations.

Mona Bitar, consumer leader at EY UK and Ireland, commented: “The impact of COVID-19 has dramatically accelerated the shift in consumer behaviour, requiring retailers to adapt at an extraordinary pace.

"But what is certain, is that retailers cannot afford to continue as usual, in the hope normality will resume soon, almost all will need to undertake some transformational and turnaround activity to help see them through.”

According to EY’s report, 'specialty retailers’ issued the most profit warnings (17) in the sector during the first half of 2002, followed by ‘apparel retailers’ (15) and ‘home improvement retailers’ (10).

Bitar stated that driving growth will be tough for retailers. "To thrive in this next era, retailers must look to truly integrate their online and offline channels or risk running two parallel business models with reduced productivity across both, splitting capital and overall investment activity.

"Operational efficiencies, increasing automation and supply chain reviews are all important factors to control costs - the key need will be to create a differentiated customer experience to boost demand.”

After a record breaking first quarter in 2020, when UK quoted companies across all sectors issued 301 warnings – almost equivalent to the full year total for 2019 (313) - EY recorded 165 profit warnings in the second quarter of 2020, which was almost 100 more than the same quarter last year and a 139 per cent year-on-year increase.

Profit warnings from consumer-facing companies were less prominent in the second quarter of 2020, however this is only after an exceptionally high level of warnings and forecast adjustments in March.

Alan Hudson, turnaround and restructuring leader at EY UK and Ireland, added: “Many businesses that were essentially sound before the virus struck, have been forced to fundamentally reassess their expectations and business plans - it’s vital that UK boards don’t underestimate the depth and extent of both the immediate and long-term challenges ahead.”

Share Story: