Fall in profit warnings ‘masks true picture’
A FALL in profit warnings during the third quarter by North West companies ‘masks the true’ economic picture, according to business advisers Ernst & Young.
Research by the firm shows there were just two profit warnings between July and September, compared with four in Q3 2010, and six in the second quarter of this year. So far this year there have been 15 profit warnings from North West companies, representing just 4% of the UK total.
Tom Jack, restructuring partner at Ernst & Young in Manchester, said: “On the face of it this is good news for businesses in the North West, however, I fear this masks the true picture, where low expectations of consumer demand and market activity have already been built into forecasts for the second half of the year.
“As is the case across the UK, the coming months will be particularly challenging for the regions’ retailers, who this year more than ever need to see a strong seasonal upturn in sales leading up to Christmas.”
Jack and colleague Simon Allport have handled a number of high profile retail insolvencies this year including Crewe DIY chain Focus and more recently TJ Hughes.
Nationally, quoted companies – Full and AIM listed – issued 51 profit warnings in Q3 2011, 11% more than the same quarter of 2010 , but 28% fewer than were issued in the previous three months.
The FTSE sectors with the highest number of profit warnings this quarter were general retailers & media with six, and software & computer services and construction & materials with five.
Commenting specifically on the retail sector ahead of the crucial Christmas trading period Jack added: “As we move into the vital final quarter, profit will come second to cash flow concerns for those retailers who have already dug deep into their reserves to put stock on the shelves and pay the rent.
“Some are clearly running on empty and desperately need tills to start ringing quickly.”
Jack said as competition and pricing intensifies, there is a danger some retailers could fail in the final months of this year as they run out of cash.
