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Last Updated: Sunday, 13 January 2008, 00:33 GMT
Profit warnings hit six-year high
Sale sign in shop window
Some retailers slashed prices early after poor pre-Christmas sales
Profit warnings by UK listed firms are at their highest level for six years.

Research by Ernst & Young shows nearly 400 warnings about disappointing profits were issued in 2007, up by more than 10% on the previous year.

The final quarter saw the highest rise of all, up by more than 20% on 2006, largely due to the credit crunch.

The retail sector suffered badly, with an annual total of a record breaking 47 profit warnings, and so too did the leisure industry, including pub chains.

Ernst & Young said wet weather and "regulatory changes" like the smoking ban were largely to blame for deterring drinkers.

'Tough year ahead'

The figure of 384 profit warnings in 2007 is the highest since the technology-led stock market crash in 2001.

One in five warnings blamed the fallout from the US sub prime mortgage crisis and the credit crunch. Most of those were from firms outside the financial sector.

Support services: 22
Retailers: 12
Media: 10
Software and computer services: 9
Travel and leisure: 8
Ernst & Young figures for final quarter of 2007

Ernst & Young said 2008 would be "a tough year" with a slowing economy, although it was as yet unclear how significant the slow down would be.

In the final quarter of 2007, support services issued 22 profit warnings; the retail sector 12; media firms 10; software and computer services nine, and travel and leisure companies eight..

Andrew Wollaston, corporate restructuring partner at Ernst & Young, said that while Christmas "wasn't a complete disaster" on the High Street, some companies suffered more than others, such as clothing, footwear and electrical retailers.

"On the winners' side, department stores appear to have held up well, along with grocery sales, whilst games console retailers were buoyed by demand for the must-have present this Christmas," Mr Wollaston said.

Pubs feel pinch

Mr Wollaston said Christmas may have been "the consumer's last hurrah".

"The era of easy credit is over and I think in 2008 retail sales growth will stall as the discretionary spending comes under pressure," he said.

"Corporate activity and restructurings of poorly performing retailers look inevitable in the year ahead."

Overall in 2007, leisure industry, particularly gaming, pub and restaurant chains, issued a total of 21 warnings, up 40% from 2006.

Ernst & Young warned that businesses relying on the credit markets or consumer spending are likely to struggle most in the coming year.

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