Profits warning puts pressure on Somerfield chief

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The Independent Online
SOMERFIELD, the struggling supermarkets group, issued its third profits warning in four months yesterday when it said that trading in its stores continued to be poor. The fresh warning increases the pressure on David Simons, the beleaguered chief executive, with some analysts predicting changes at the top.

Shares in Britain's fifth-ranking supermarkets operator plunged nearly 20 per cent to a new low of 94p after the company said that weak sales trends had continued. Annual profits will be at the lower end of City expectations, the company said.

Somerfield, which merged with Kwik Save last year, was forced to issue the warning after WestLB Panmure slashed its current-year profits forecast from pounds 110m to pounds 95m, prompting a slide in the shares. The broker also put a new 80p target on the shares, which reached 458.5p a year ago. "The confidence in this company, from suppliers and the City, has collapsed," said WestLB's Philip Dorgan.

Somerfield is undergoing a strategic review and is expected to brief the market on its plans in the next few weeks. Many of the Kwik Save stores are struggling, with sales down by about 12 per cent, and the company is understood to be in talks with a rival supermarket group over the sale of up to 200 of its stores. However, some of the group's investors are pushing for a more radical solution from Mr Simons.

"We think they need to think fairly radically," said one fund manager. "The lines have been redrawn by the new entrants, such as Wal-Mart, and I think you need a new strategy for the new market."

Some analysts said that Mr Simons may be forced out after six years at the company. "I'm sure he will be thrown overboard. People need a scapegoat," one said.

But others said they felt Somerfield was in an almost impossible position, with a weak brand, high overheads and declining sales. "This company will be making a loss in two years' time if things carry on like this," one analyst said.

In Somerfield's last trading update in September, the group said that like-for-like sales at the Kwik Save operations fell by 12 per in the 16-week period to 24 August. Underlying sales in some Kwik Save branches are thought to be down by over 20 per cent. Attempts to move some of the stores upmarket with higher-value Somerfield merchandise have failed.

The Somerfield-branded stores saw like-for-like sales - which exclude sales made in newly opened store branches - rise by 1.1 per cent during the same period.

Outlook, page 21

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