Matalan alarm bells ringing

SHARES in Britain's leading retailers tumbled today after discount clothes chain Matalan issued a shock pre-Christmas profits warning.

Although its full-year results depend on trading in the next few weeks, Matalan chief executive John King said it was clear that profits would fall materially short of expectations.

The company's shares plunged 15%, a 33 1/2p tumble to 181 1/4p, on the news, while bigger rivals Marks & Spencer, Boots and Kingfisher suffered heavy losses.

Analysts now have major concerns about the slow start to the Christmas shopping period.

They swiftly slashed their forecasts for the discounter by as much as 25% for the year to February and now expect them to be around £84m, against previous expectations of £110m. Forecasts for the following year were also reduced.

Although Matalan suffered a dismal first half, there had been welcome signs of a recovery in October, with sales for the first five weeks of the second half ahead by 5.7% like-for-like.

Since then, however, trading conditions have deteriorated and in the 14 weeks to 6 December, like-for-likes went into reverse, tumbling by 7%.

'Trading just dropped off a cliff in November,' said King. He believes others in the sector are suffering just as much, if not more, than Matalan. Austin Reed has already warned on profits.

Matalan will attempt to kick-start Christmas sales this weekend, with a four-day, 20%-off event across its stores. A special promotion had been planned for this weekend, but the price cuts were not originally intended to be made across the board.

The 7% fall in sales is made up of 1.2% fewer transactions and a 5.8% lower average basket value. One of the main problems has been a slump in sales of higher priced items.

Sales of lower-priced goods, such as gifts, have been better, but this has not been enough to offset the trend. 'You have to sell an awful lot of £3 knickers to make up for a £75 leather jacket,' he added.

Founding family take £100m hit

The share price slump cut almost £100m from the value of the 52% stake still held in the company by founder and chairman John Hargreaves and his family. At 181 1/4p, down 33 1/2p, their stake is now worth £395m. The value of the company fell by £181m to £760m.

Matalan floated in May 1998 with a value of £200m and became one of the brightest stars in the retail sector.

Latest figures from retail monitor FootFall show there were 5% fewer visitors to Britain's biggest shopping centres last week than the same week last year. Some stores have already started sales.

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