Woolworths shares plummet after 'challenging' Christmas

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Shares in Woolworths fell by almost a fifth yesterday after investors took fright from a fall in sales following a challenging time over Christmas.

The high street chain reported a 3.2 per cent drop in like-for-like sales over the 49 weeks to 12 January but declined to strip out a figure for the festive period. Some analysts believe the drop could be as much as 5 to 7 per cent after shoppers, reeling from higher interest rates and household bills, tightened their belts.

However, the company remained upbeat about its prospects and said it will return to profitability this year.

The chief executive Trev-or Bish-Jones said Woolworths was "used to managing through tough times". He said: "We will be relatively relaxed if there is a downturn in consumer confidence as we have a number of unique weapons."

Among these is Woolworths' value Worth It range, which was introduced last March and enjoyed sales of £2m to £3m a week over the Christmas period, Mr Bish-Jones said. "This is a clue that consumers are looking for value," he said.

Mr Bish-Jones said that due to the economic environment, the company had taken the decision to chase profits rather than sales. Woolworths cut back on its advertising spend and put less electrical items into the mix. Electrical sales, particularly flat-screen televisions and PCs, accounted for around half the reduction in turnover during the period.

But although analysts said there were glimmers of hope from the retailer on profitability, Richard Hunter, head of UK equities at Hargreaves Lansdown Stockbrokers, said: "Woolworths has unfortunately done little to alleviate the current high street gloom ... Whilst there is a faint hope of an approach from another party, the general market view is that even after a 70 per cent drop in the share price over the last year, there is little to go for and the shares remain a hold." Shares fell 1.79p to 8.21p yesterday.

Woolworths said the Christmas best-sellers were the Nintendo Wii and Lady-bird clothing. Although clothing retailers have generally had a poor Christmas, childrenswear is more resilient. There was further evidence of this yesterday from Mothercare, which reported a 3.4 per cent rise in like-for-like UK sales over the Christmas period which will leave it on track to deliver profits at the top end of expectations.

Its chief executive Ben Gordon said: "The group is benefiting from our strategy of positioning Mothercare as the leading spec-ialist brand for parents around the world." The company's international business was also performing well, he added.

Meanwhile, Punch Taverns, the UK's biggest pub operator, blamed weakening consumer confidence and the impact of the smoking ban for "subdued trading" over Christmas. Its core portfolio of pubs leased to landlords saw a 0.8 per cent decline in like-for-like profit since mid-August, while sales at its 869 managed pubs dropped 2.2 per cent despite a 1 per cent lift in food sales. The group also warned that growing sales of its less profitable food offering, together with rising costs, would affect operating margin in the managed pubs business.