Profit warnings jar high street as slowdown looms

The cloud hanging over the UK economy turned a shade darker yesterday as three companies dependent on consumer spending each issued profits warnings. Shares dived in Clapham House, the restaurant group behind Tootsies and the Gourmet Burger Kitchen, ScS Upholstery, the furniture store chain, and Regent Inns, owner of the Walkabout and Jongleurs bars, as all three warned of a serious slowdown in sales.

The trio's downbeat assessments of the prospects for consumer spending came as the British Retail Consortium said the high street as a whole had also suffered during November. Total retail sales grew 1.8 per cent over the three months to the end of November, the BRC said, down from 2 per cent in the same period last year.

The BRC warned that most retailers were now expecting to cut prices in order to attract customers in the run-up to Christmas. "This will not be the result many retailers were hoping for," said Helen Dickinson, head of retail at the accountant KPMG.

The three businesses making profits warnings said yesterday sales had already begun to suffer because of increasing pressure on consumer finances.

ScS Upholstery warned its total sales order intake for the first 17 weeks of the current financial year was down by 9 per cent on 2006. Mike Brown, ScS's chairman, said that successive interest rate rises and a squeeze on lending was taking its toll on consumers.

"The results ... are a disappointment and reflect the extremely difficult trading environment which has prevailed since January," he said.

"[The interest rate] increases have exerted severe pressure on household disposable income and we have seen reduced footfall year-on-year. In addition, as consumer credit providers seek to minimise their risk through tougher lending criteria, this has led to lower customer loan acceptance rates than experienced last year and a reduction in customers able to make higher-order value purchases."

Clapham House said it expected growth in 2008 and 2009 to be "significantly" below previous expectations given the uncertain economic outlook, as well as factors including food price inflation and rent increases. The company said it now planned to open fewer than expected new restaurants in the coming year: "We still expect to grow next year but ... anybody who has a consumer-facing business has to be a bit worried," said Paul Campbell, the Clapham House chief executive.

Regent Inns said its sales over the 21 weeks to the end of November had fallen 2.8 per cent compared to last year and warned it was no longer confident of achieving profits growth during the current financial year. Its shares fell 41.5 per cent.

Bob Ivell, the Regent Inns chairman, said that the warning reflected the growing reluctance of consumers to spend. He said: "We remain cautious in our outlook given the trading conditions in the late-night market, the likely slowdown in consumer spending, the full impact of the smoking ban and England's failure to qualify for Euro 2008."

Greg Feehely, head of research at Altium Securities, said that most analysts were now expecting a major slowdown next year, though not a full-blown recession.

"There are certainly some economic headwinds out there," he said. "Most people are expecting a slowdown in spending; but that is all that they are expecting a slowdown, not a recession."

Mr Feehely predicted that interest rate reductions would not start having a significant effect on consumer confidence until later in the year, particularly if the Bank of England proves more reluctant than expected to cut the cost of borrowing.