‘Worrying trend’ as Scottish profit alerts rise again

Record high numbers of profit warnings in the retail and leisure sectors are a sign of people being increasingly careful with how they spend their disposable income, says Dempster. Picture: contributed
Record high numbers of profit warnings in the retail and leisure sectors are a sign of people being increasingly careful with how they spend their disposable income, says Dempster. Picture: contributed
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Profit warnings from Scotland’s listed companies are continuing to increase amid signs of a concerning trend, according to figures published today.

Accountancy firm EY said the five warnings recorded in the third quarter - including ones from Perth utility giant SSE and five-a-side pitch operator Goals Soccer Centres - accounted for half of all alerts so far this year.

The figures show that warnings from Scottish quoted companies have continued to rise after two were recorded in the first quarter and three in the second. The third-quarter total is two more than were seen in the same period in 2017 and the highest total for the period since 2015.

Colin Dempster, EY’s head of restructuring in Scotland, said that although the latest figures indicate a “worrying” trend, he also believes it could be short-lived if companies respond to challenging trading conditions.

“Companies that choose to reassess their operating model and embrace new technologies are likely to be more resilient in the short-term and be well-placed for future success post Brexit.”

Across the UK, there was a total of 68 companies issuing profit warnings in the three months with their share prices falling by an average of 21 per cent, comparable to figures seen ten years ago at the height of the financial crisis.

In a further worrying sign for the UK economy, the percentage of quoted companies warning in the last 12 months has increased to 15.6 per cent (206) compared to 14.4 per cent (191) a year ago.

Companies in the retail sector accounted for eight profit warnings between July and September, the joint-highest third-quarter figure since the financial crisis. In the first nine months of 2018, the sector has already surpassed 2017’s total number of warnings, with a third of quoted retailers warning in the year-to-date.

Travel and leisure companies saw seven profit warnings, the highest third-quarter total for two years.

“It is no surprise to see the UK retail and the leisure sectors record high numbers of profit warnings – this is another sign of people being increasingly careful with how they spend their disposable income,” said Dempster.

“Retailers have also contended with a year of weather extremes, but looking ahead we anticipate one of the most demanding ‘golden’ quarters leading up to Christmas trading in many years. If 2018 follows the pattern of recent years, consumers will hold back spending from now until Black Friday, which could result in heavy discounting to drive sales.”

The fourth quarter has also got off to a bad start for Scottish plcs with a warning issued earlier this month by Glasgow-based Quiz Clothing. The retailer said it had been hit by lower-than-expected sales through third-party online partners in the second quarter of year, a weaker sales performance at its UK stores and the collapse of House of Fraser.