Ottakar's warns on profits after exit of finance chief

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The Independent Online

The bookshop chain Ottakar's issued a profits warning yesterday just four months after its finance director quit unexpectedly.

The company became the third retailer in three days to bring forward its post-Christmas trading update after two months of disappointing sales. Its shares plunged 14 per cent to 285.5p

The warning shed more light on why Edward Knighton resigned. The company said it had unearthed "additional costs" that had not been spelt out before Mr Knighton's departure in November. He had announced he was quitting in September. It is understood that operating costs spiralled faster than expected because of higher-than-forecast rent reviews. There were also additional employee costs relating to its recent acquisition of Hammicks, a rival bookseller.

Ottakar's said parting company with Mr Knighton had cost it £300,000, including a £100,000 pay-off to cover the remaining 10 months of his contract. It said the combination of the additional costs and weak sales meant pre-tax profits for the 52 weeks to 29 January would be about £7m ­ against analysts' expectations of £8.9m.

Philip Dunne, the chairman, said the group had a shortlist of potential replacements for Mr Knighton, who is often credited with transforming the business during his five-year tenure. Mr Dunne reiterated yesterday that Mr Knighton's departure had been by "mutual consent".

Before Mr Knighton left, he sold stock for £694,000 in October. He disposed of 117,990 shares at 363p, and exercised options over almost 74,000 shares. One month later he bought 10,000 shares at 324p per share, leaving him with 30,000 in the business. He is known to be keen to obtain another job in the public arena.

Ottakar's revealed a poor Christmas had cost it £2.5m in lost sales. Its like-for-like sales growth slowed to 2.2 per cent over the five weeks to 1 January, from a 6.6 per cent increase at the start of its second half. Last year sales during the same period increased by 7.7 per cent. Total sales in the five weeks to 1 January rose 8 per cent.

Mr Dunne predicted Ottakar's rivals, which include the embattled WH Smith, would have found the going as tough as it had. "I would be surprised if we're not broadly in line with the market," he said.

Although industry figures show book sales vaulted 40 per cent in the final week before Christmas, Mr Dunne said this was not enough to compensate for a weak November and December.

Analysts attributed the sector's slower-than-expected sales to the increasing might of online rivals such as Amazon.