Coming hard on the heels of the appointment of receivers at Essex Furniture last week, the warning sent shares in Harveys, which peaked at 343p earlier this year, slumping more than 40 per cent to 62p at the start of trading, dragging down rival retailers. Shares in DFS Furniture, Courts, SCS Upholstery, Carpetright, Allied Carpets and Rosebys all fell by between 5 and 15 per cent.
Harveys' managing director, Rob Templeman, said like-for-like sales for the first half of the current year were down by 5 per cent on the period last year, and sales have shown a significant decline in the last six weeks.
If sales remain at current levels, the company expects that profits in the year to 24 April 1999 will be significantly below market expectations and below the level of normalised profits reported in the 1997/98 year.
The group has 350 stores, mostly with mid-market to down-market profiles, in a variety of locations throughout the country including Wales and Scotland. It sells a wide range of goods from furniture and beds to furnishings, bed linen and towels.
The statement blamed "a significant downturn in consumer spending, particularly on consumer goods, and evidence that trading conditions within our section of the industry have deteriorated significantly in the last few weeks".
Spending on big-ticket items, such as lounge suites in the pounds 500 to pounds 2,000 range, has suffered most as consumers cut back on spending in anticipation of widespread job losses. A drop in the number of shoppers has also affected sales of cheaper items.
Falling mortgage rates will help boost consumers' discretionary spending, but the trading outlook for the second half of year continues to look bleak. Less than 15 per cent of sales are made on credit, and Harveys already makes full use of discount offers and sources between 30 per cent and 40 per cent of its products from cheaper suppliers abroad, the finance director, Gordon Caldwell, said yesterday.
Although sales are down, the company maintains that it is continuing to increase its market share, while continuing spending on store refurbishment has made it better placed than its competitors to take advantage of any upturn in the economy.
But no upturn is expected in the current financial year, and analysts immediately slashed forecasts from pounds 17m to pounds 20m to pounds 13m to pounds 14m, well down on last year's pounds 16.8m.
Few of Harveys' rivals expect to escape the effects of a slump in spending. DFS Furniture shares fell 24.5p to 172.5p ahead of today's figures. Based on last year's dividends the shares of most companies in the sector now yield between 10 per cent and 20 per cent, and sell on 5 to 10 times historic earnings, anticipating falls of at least 50 per cent in both earnings and dividends this year.