High street jitters as Christmas looks bleak
Thursday 03 December 1998
Arcadia, the clothing retailer that includes Burton Menswear, Principles and Top Shop, led the way with a shock profits warning which knocked 26 per cent from the company's share price.
Separately, Allied Carpets said its already weak sales had fallen further and that trading patterns were unpredictable.
Hornby, the model railway and Scalextric group, also issued a profits warning and said nervous retailers were holding back on orders due to fears of poor Christmas demand.
The catalogue of woe sent retail stocks tumbling. While Arcadia shares fell 75.5p to 212.5p, rival retailers such as Debenhams, Next, Sears and Oasis Stores also suffered sharp share falls.
Arcadia said its sales in the first half of its financial year had fallen short of expectations and that the outlook for the rest of the period was not as encouraging as previously anticipated. It blamed a "sharp downturn" in consumer spending and an exceptional level of competition which had led to an increase in discounting.
Consequently, in the first 13 weeks of Arcadia's first half, group sales were up by just 0.4 per cent while sales densities were down by 1.8 per cent.
The Arcadia warning angered City analysts who claimed the company had said trading was in line only six weeks ago.
"It will take a while for them to re-build their credibility after this," one analyst said. Brokers were forced to cut profit forecasts sharply, with BT Alex Brown and HSBC James Capel reducing their full-year expectations to pounds 60m from pounds 90m and pounds 80m respectively.
Arcadia's warning follows a string of grim statements from Britain's retailers as the fear of recession gathers pace.
Marks & Spencer announced a 23 per cent fall in profits last month and described the clothing market as a "bloodbath". Since then there has also been bad news from Storehouse, which owns Bhs and Mothercare, and other fashion groups such as New Look.
John Hoerner, Arcadia's chief executive, said: "You never know for sure how Christmas selling is going to come, and different patterns have occurred in recent years, but with the current trend of the start of the season, it certainly isn't good news."
Mr Hoerner added that the downturn had not only hit its high street chains but also its home-shopping joint venture with Littlewoods, mail- order brands Hawkshead and Racing Green, and catalogues linked to the Evans and Principles chains.
Meanwhile Hornby, the trains and Scalextric group, reported a sharp fall in first-half profits from pounds 973,000 to pounds 425,000.
Peter Newey, Hornby's chairman, said: "A lot of consumers are very nervous, and retailers think there is going to be a recession. That has had an impact on suppliers."
The problem has been exaggerated by retailers keeping a tight control on stock and delaying regular christmas orders. In an effort to control costs, Hornby will be moving almost all of its model railway production to China next year.
Allied Carpets said underlying sales in the first 22 weeks were down by 8.2 per cent compared to the 7.5 per cent fall announced just five weeks ago.
The details were included in a circular sent to shareholders relating to the sale of its Carpetland stores to the rival Carpetright group. Allied Carpets has been the subject of bid speculation with Carpetright and Alchemy Partners, the venture capital group, expressing interest.
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