Profit warnings drop but tougher times are forecast

THE number of profit warnings issued by the region’s quoted companies fell during the second quarter of 2011. Six companies issued warnings during the second quarter, compared eight in the first.

However, accountancy firm Ernst & Young, which carries out the research, has warned that more profit warnings are likely as factors like rising inflation, increasing debt and diminishing job security kick in.

Nationally, the firm said 26 retailers issued profit warnings during the quarter, which was more than the sector put out throughout 2010.

Rising input prices remain a significant contributor to profit warnings, with the weak economic environment making it harder for companies to pass on significant rises in raw materials.

Tom Jack, restructuring partner at Ernst & Young in the North West, said that it has been a tough first six months and it is no surprise retail continues to suffer.

He said: “The spending boost gained from the long run of spring bank holidays, the fair weather and the Royal Wedding can only provide a temporary reprieve for retailers, many of which are burdened with debt, weakened by snow and under stress from years of tough trading.

“The latest figures show that household disposable income is falling 2.7% year on year, with tax rises, benefits cuts and below-inflation wage increases have really taken their toll on consumers’ ability to part with their cash at the tills.

“This is particularly evident in the North West which has seen a number of high profile failures including Focus, TJ Hughes, Henleys and Homeform.”