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McColl’s issues a string of profits warnings before collapsing in May this year

A record number of grocery stocks issues profits warnings in the first half of 2022 as spiralling costs squeezed margins and consumers tightened purse strings.

The latest report from EY-Parthenon revealed that 16 FTSE retailers issued a profit warning in the first six months of the year, compared with ten in the first half of 2021, while warnings in the FTSE personal care, drug and grocery stores sector reached a record high of 13.

Half of all the 136 profit warnings (a rise of 66% on 82 in 2021) issued in H1 across all sectors came from consumer-facing sectors, compared with a third a year ago.

Of all the 64 warnings issued in the second quarter (down from 72 in Q1), a record 58% of companies cited rising costs as one of the main reasons behind the warning, up from 43% in Q1, while 19% noted labour market issues.

In total, of the 1,222 UK-listed companies, 70 have issued at least two consecutive warnings in the past 12 months. EY said that, on average, one-in-five companies delist within a year of their third warning, most due to insolvency.

Three-quarters of the FTSE retailers that issued a warning in the first half of 2022 came from companies which operate exclusively or mostly online, including Asos, as shoppers returned to bricks-and-mortar stores.

Other stocks to issue profits warnings in the first half included B&M European Value Retail, Greggs, McColl’s, which collapsed into administration in May.

Just last week, Fever-Tree Drinks warned on its profits as costs of materials such as glass and other shortages meant it was unable to fulfil demand for its range of mixers. And this morning Deliveroo slashed its full-year sales outlook as consumers cut back on spending.

Alan Hudson, EY-Parthenon partner and UK&I turnaround and restructuring strategy leader, said companies were facing a myriad of headwinds that would challenge even experienced management teams.

“Over the first half of this year, we have seen profit warnings prompted primarily by cost and supply chain issues, but as we start to see a fall in consumer demand and confidence, it is likely that other underlying stresses will become exposed,” he added.

“Businesses will need to prepare for lower growth, tighter capital and significant market volatility in the coming months. As profit warnings and stress levels rise, we’re starting to see more companies issue multiple profit warnings and a return of companies approaching the ‘three warning rule’.”