Land of Leather shares sink 48 per cent after its new year sale flops

Land of Leather shares lost 48 per cent of their value yesterday after the furniture retailer's biggest ever new year sale failed to lure customers, forcing it to issue a profits warning.

Within minutes of an announcement to the London Stock Exchange revealing a 25.5 per cent drop in like-for-for like sales orders in the three months to 3 Jan-uary, shares in the company plummeted almost 50 per cent. The retailer closed the day down 54.75p at 59p. The shares were trading above 350p a year ago.

Land of Leather normally takes about one quarter of its annual revenue during the new year sale. Just two weeks ago, it said it expected to sell more than 30,000 sofas on Boxing Day alone after it slashed prices along with other furniture retailers in a sofa price war. The company has invested in 19 hours of prime-time Christmas television advertising.

But yesterday, Land of Leather said difficult trading conditions which the industry experienced prior to the sales have continued. "The well-publicised credit crunch appears to have further affected consumer confidence and spending since November," the company said. "In addition to the lower sales, the strong promotional activity in the period together with the tendency of the consumer to trade down in more difficult times has resulted in a reduction in expected gross margin in the year to date." The reduction is estimated to be in the range of 50 to 150 basis points and will mean annual profits will be "significantly below" last year's.

"The current challenging market conditions resulting from low levels of consumer confidence are likely to continue for some time," the company said. Despite its problems, the company currently has 25m in the bank and said it will continue with a share buy-back programme announced in September.

Land of Leather is the latest casualty of the consumer slowdown sparked by higher interest rates and household bills and a tighter credit market. Earlier this week, DSG International shares took a hit after the electrical retailer warned full-year profits would be as much as 50m short of City expectations. Next also warned investors to expect a difficult year as it unveiled a 3.2 per cent drop in like-for-like sales in the Christmas period.

According to the financial advisers Grant Thornton, the number of negative trading statements issued to the stock exchange in the fourth quarter of 2007 was at its highest level for almost two years. Some 22 per cent of retailers posted negative updates up from 15 per cent in the third quarter of the year. Furthermore, the number of positive trading updates dropped from 62 to 41 per cent, while the remaining 37 per cent were neutral.

David Bush, the head of Grant Thornton's retail service team, said that while food and drink retailers have experienced five quarters of like-for-like growth, it is the non food and drink retailers that have "felt the full impact of the consumer slowdown in spending, particularly those retailers in the fashion industry and those selling high-ticket products, such as furniture".

Mr Bush added: "It would appear likely that many shoppers over Christmas cut back on spending on presents before they did on food and drink."