By Daniel Hunter

Profit warnings hit a six-year high of 299 in 2014, with more FTSE 100 companies warning in 2014 than at the height of the credit crunch, according to EY’s latest Profit Warnings report.

Adverse exchange rates, in particular a strong pound and weakening emerging market currencies, were cited by 17% of those companies warning in 2014, including 27% of warnings from the more internationally exposed FTSE 350.

Black Friday boost for retailers?

The retail sector had an eventful 2014, from the IPO boom to a game-changing Black Friday and a seismic year for grocery. FTSE Food & Drug Retailers companies issued eight profit warnings in 2014 — the highest recorded since the EY Profit Warnings report began in 1999. In contrast, just 14% of FTSE General Retailers companies warned in 2014 — a record low.

Jessica Clayton, EY transaction advisory services partner and retail specialist, said, “The disparity is stark and has parallels to the mid-2000s, when structural changes pushed profit warnings from general retailers to record highs, whilst warnings from food retailers hit record lows. Arguably the grocery sector is now undergoing a similar revolution, with disruptive new entrants, online adoption and changing consumer behaviour exposing weaknesses and overcapacity and compelling exposed retailers to take radical action.”

Retail sales data confirms that Black Friday did bring consumers out in droves. However, profit numbers may tell a very different story to the sales data. Some question whether it is in the sector’s best interests to focus so much trading on one discounted day so early in the season.

Clayton added: “Once retailers had discounted, it was also hard to revert back to full price. The extreme peak in sales placed significant pressure on retailers’ infrastructure, particularly in fulfilment, with third party delivery services also struggling to cope. To avoid similar issues next year, retailers will need to make considerable investment across all of their channels to meet the challenge. This begs the question: ‘Is it worth it?’ However, the question may be moot, as it will be hard to put the genie back in the bottle.”

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