// New research found that FTSE retailers issued 38 profit warnings in first 3 months of 2020
// 28 of the warnings issued by listed retailers cited Covid-19
FTSE retailers have issued 38 profit warnings in the first three months of 2020, surpassing the total number recorded in the sector in 2019, new research found.
According to EY’s latest Profit Warnings Report, 28 of the warnings issued by listed retailers cited Covid-19, with many businesses experiencing an abrupt slowdown as a result of the crisis.
When compared to the same period last year, the number of warnings issued by the FTSE retail sector in the first quarter of 2020 more than tripled from 11.
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Although 77 per cent of UK profit warnings blamed Covid-19 in the first quarter of 2020, EY said “significant parts of the UK” were struggling before the pandemic.
In January 2020, EY recorded that UK warnings had increased by 43 per cent year-on-year, while the end of February saw FTSE Retailers announce a material downgrade to their profit expectations.
“A number of retailers entered 2020 already grappling with significant long-term structural pressures, which have been exacerbated by the impact of Covid-19 and lockdown measures,” EY head of retail UK & Ireland Julie Carlyle said.
“With increased financial pressures and further shifts in consumer behaviour, we expect those structural challenges to accelerate.
“Many savvy retailers have responded to the crisis by quickly modifying their online operations.
“Others have used the opportunity to rethink their store portfolios or business model. Those that give their customers confidence and engender trust with positive behaviour, including supporting the community, will likely see the benefit of that from consumer goodwill in the longer term.”
Meanwhile, the report also found that “specialty retailers” – 13 of them – issued the most profit warnings in the FTSE Retailers sector during the period, followed by apparel retailers and home improvement retailers – both issuing 10.
EY restructuring partner Lisa Ashe said: “We know from previous crises that one of the biggest tests comes when companies need to reflate balance sheets, restock inventory and depend on supply chains that have been similarly tested.”
“This time, companies face a unique set of additional challenges as they work to safeguard business continuity and the health of employees and customers.
“It is wise for companies to take a slow and steady approach to restarting operations that allows for flexibility, so they can react to continued uncertainty for some time to come.”
EY expects the number of UK profit warnings to fall, but distress levels to rise – “with echoes of 2008 to 2009 and the aftermath of the financial crisis”.