Christmas shoppers stay away from Matalan

Prophesies of the toughest Christmas for retailers for years looked like coming true yesterday after Matalan became the first clothing group to blame a profit warning on a lack of festive shoppers.

The discount retailer, an erstwhile stock market darling, revealed that underlying sales had plunged by 10 per cent in November - its key trading month - sending its shares down 16 per cent to 179.5p.

Matalan, which as an out-of-town retailer misses out on the last-minute shopping frenzy enjoyed by high street shops as Christmas nears, said its pre-tax profit for the year to 28 February would fall "materially short" of market expectations. The warning unnerved the City and sent shares in companies from Boots to Dixons, and Marks & Spencer to Peacocks, sharply lower.

John King, the group's third chief executive in two years, blamed rival clothing companies slashing their prices in a series of unexpected sales. "We didn't anticipate the level of external promotions elsewhere on the high street, which has clearly been increasing as people suffer," he said. Mr King, who had expected sales last month to bounce back, also admitted the company had made a mistake by axing one of the two customer mail shoots planned for November. The company relies on the mailers to entice shoppers into its stores.

Analysts took a knife to their forecasts for Matalan and other retailers. Numis Securities cut its pre-tax profit target for the discount retailer by 24 per cent to £84m, while Seymour Pierce reduced its expectations for Marks & Spencer by 4 per cent to £730m. Gillian Hilditch, at Arbuthnot, said: "It's difficult to know what to expect from Matalan next year. This statement has very much damaged market sentiment and management credibility."

Matalan, long tipped as a takeover target, said underlying sales in the 14 weeks to 6 December were 7 per cent lower, reversing a 6 per cent underlying sales gain in the first five weeks of its second half. Mr King said higher priced items, such as leather jackets and winter coats, had failed to sell. He admitted margins would suffer as prices were cut to clear stock.