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Profit warnings issued by North West listed companies double year-on-year in Q3 2022

  • Eight profit warnings were issued in Q3 2022 in the North West, up from four in Q3 2021
  • North West warnings up from six in Q2 2022
  • Highest number of Q3 warnings in the North West since 2019
  • Highest volume of North West profit warnings issued by companies in consumer-facing industries and retail sector

NORTH WEST, MONDAY 24th OCTOBER 2022: Profit warnings issued by UK-listed companies in the North West of England in Q3 2022 doubled year-on-year, according to EY-Parthenon’s latest Profit Warnings report.

In total eight warnings were issued throughout the region in Q3 2022, up from four in Q3 2021 and six in Q2 2022. The third quarter’s eight warnings represent the region’s highest third-quarter profit warnings total since 2019.

Consumer-facing industries and the retail sector saw the highest volume of profit warnings issued across the region for Q3, as cost-of-living pressures continued to squeeze spending habits.

Sam Woodward, EY-Parthenon UK&I Turnaround and Restructuring Partner in the North West, said: “The volume of profit warnings in the North West had cooled since last winter, but challenges for businesses have increased over the last few months, leading to rising numbers of warnings. Given the impact of the cost-of-living crisis on consumers, it‘s unsurprising to see consumer-facing businesses among the most affected across the region.

“We’re approaching the important ‘golden quarter’ of Q4, during which retailers have traditionally looked to maximise seasonal sales opportunities. However, with ongoing geopolitical challenges and disruptions in supply chains skewing working capital for many, businesses in the North West and further afield could be facing another difficult period.”

National profit warning figures

Nationally, profit warnings issued by UK-listed companies in Q3 2022 reached their highest third-quarter total since 2008. A total of 86 profit warnings were issued between July and September 2022, compared to 51 in the same period of 2021, an increase of 69% and a 34% increase from Q2 2022 when 64 warnings were issued.

Warnings issued by consumer-facing companies rose almost three-fold year-on-year, and EY-Parthenon’s report reveals that 57% of warnings during Q3 cited rising costs, while 23% were prompted by labour market issues.

The three warning ‘danger zone’ now contains 28 listed companies who have issued their third consecutive profit warning in the last year, compared to 18 at the end of Q2 2022. On average, one-in-five companies delist within a year of their third warning, most due to insolvency.

Consumer-facing sectors most affected

Consumer-facing companies issued 44 warnings in total – the highest quarterly total since the start of the COVID-19 pandemic. Sectors with the most warnings in Q3 2022 were Retailers (eleven), Travel and Leisure (nine) and Food Producers (seven) – with the latter sector at a 21-year high.

Cost issues featured in 70% of all consumer-facing sector warnings with many companies saying that they are struggling to pass on price increases to customers, while falling consumer confidence and changing buying behaviour featured in 50% of warnings.

FTSE Retailers facing multiple headwinds

Over 40% of FTSE Retailers and over 60% of the FTSE Personal Care, Drug and Grocery Stores sector issued a profit warning in the last 12 months.

Both sectors, which were already facing spiralling cost, supply chain and labour challenges, are now also contending with falling consumer confidence. Over 70% of retailers issuing a warning in Q3 referenced weakening consumer confidence, while inventory challenges have also intensified as falling demand creates surplus stock issues.

The retail sector has also been grappling with long-term structural change. Most retailers issuing warnings in 2022 operate exclusively or mostly online and are feeling the impact of the post-pandemic shift back to store sales on top of increased delivery costs and product returns.

Silvia Rindone, EY UK&I Retail Lead, said: “The retail sector is facing a challenging winter while according to the EY ITEM Club Autumn Forecast, the UK economy is expected to be in recession until the middle of next year. However, there are steps businesses in the sector can take to prepare. For example, it is critical that retailers use the breathing space provided by the energy price cap to safeguard their long-term survival. This means reviewing their pricing strategy and considering how and where they can pass price rises on, developing robust cash management plans and inventory visibility to avoid costly write-offs.

“Above all, retailers need to adapt to changes in consumer behaviour. Our Future Consumer Index shows that the market is polarised between cash strapped consumers watching every penny and those willing and able to spend if retailers entice them. Navigating this K-shaped profile, focusing on core products, and understanding what will drive growth will be the key to thriving in the current economy.”

Travel & Leisure profit warnings double in 2022

Companies in the FTSE Travel and Leisure sector issued 22 profit warnings in the first three quarters of 2022, double the total issued for the same period in 2021. The sector had been the beneficiary of pent-up consumer spending post-pandemic but rising costs and pressure on disposable income and consumer confidence look set to intensify during a vital period for the sector.

Sam Woodward said: “Christmas will be a critical period for the travel and leisure sector, particularly hospitality. Winter is also when traditionally tour operators start to see deposits for summer travel coming in, but consumers are increasingly taking a wait and see approach creating cash flow challenges and making it much harder for businesses to plan.

“Some companies will struggle to adapt, and some will be vulnerable to failure. But for travel and leisure companies who draw upon their experience, resilience, and agility, and tell a compelling long-term value story, the opportunities are significant.”

Sam Allcock
Sam Allcock
With over 20 years of experience in the field SEO and digital marketing, Sam Allcock is a highly regarded entrepreneur. He is based in Cheshire but has an interest in all things going on in the North West and enjoys contributing local news to the site.
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