The number of profit warnings issues by companies in the North West doubled year on year as the cost of living crisis continued to bite.
EY-Parthenon’s latest Profit Warnings report showed eight warnings were issued throughout the region in Q3 2022, up from four in Q3 2021 and six in Q2 2022. Consumer-facing and retail businesses were most affected.
Sam Woodward, EY-Parthenon UK&I turnaround and restructuring partner in the North West, said: “The volume of profit warnings in the North West had cooled since last winter, but challenges for businesses have increased over the last few months, leading to rising numbers of warnings. Given the impact of the cost-of-living crisis on consumers, it‘s unsurprising to see consumer-facing businesses among the most affected across the region.
“We’re approaching the important ‘golden quarter’ of Q4, during which retailers have traditionally looked to maximise seasonal sales opportunities. However, with ongoing geopolitical challenges and disruptions in supply chains skewing working capital for many, businesses in the North West and further afield could be facing another difficult period.”
Nationally, profit warnings issued by UK-listed companies in the third quarter reached their highest third-quarter total since 2008, with 86 issued compared to 51 in the same period of 2021.
EY-Parthenon’s report showed warnings issued by consumer-facing companies rose almost three-fold year-on-year. Some 57% of warnings during Q3 cited rising costs, while 23% were prompted by labour market issues.
Some 28 listed companies were in the three-warning "danger zone", having issued their third consecutive profit warning in the last year- up from 18 companies at the end of the second quarter.
Consumer-facing companies issued 44 warnings in total – the highest quarterly total since the start of the pandemic. They included 11 retail companies, nine travel and leisure companies, and seven food producers.
Cost issues featured in some 70% of all consumer-facing sector warnings, as companies struggled to pass on price increases to customers.
Silvia Rindone, EY UK & Ireland retail lead, said: “The retail sector is facing a challenging winter while according to the EY ITEM Club Autumn Forecast, the UK economy is expected to be in recession until the middle of next year.
"However, there are steps businesses in the sector can take to prepare. For example, it is critical that retailers use the breathing space provided by the energy price cap to safeguard their long-term survival. This means reviewing their pricing strategy and considering how and where they can pass price rises on, developing robust cash management plans and inventory visibility to avoid costly write-offs.
“Above all, retailers need to adapt to changes in consumer behaviour. Our Future Consumer Index shows that the market is polarised between cash strapped consumers watching every penny and those willing and able to spend if retailers entice them. Navigating this K-shaped profile, focusing on core products, and understanding what will drive growth will be the key to thriving in the current economy.”
EY said companies in the FTSE Travel and Leisure sector issued 22 profit warnings in the first three quarters of 2022, double the total issued for the same period in 2021.
Sam Woodward said: “Christmas will be a critical period for the travel and leisure sector, particularly hospitality. Winter is also when traditionally tour operators start to see deposits for summer travel coming in, but consumers are increasingly taking a wait and see approach creating cash flow challenges and making it much harder for businesses to plan.
“Some companies will struggle to adapt, and some will be vulnerable to failure. But for travel and leisure companies who draw upon their experience, resilience, and agility, and tell a compelling long-term value story, the opportunities are significant.”
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