The Motley Fool

Alert! 2 stocks I think could warn on profits before Christmas

Image source: Getty Images.

UK quoted companies have issued more profit warnings in the first nine months of 2019 than in any year since 2008. According to a report by accountancy firm EY, over a fifth of the warnings in Q3 blamed Brexit, and 31% of FTSE retailers have warned over the past 12 months.

I think the Brexit factor could be damaging for online estate agent Purplebricks (LSE: PURP), as well as clothing retailer Ted Baker (LSE: TED). I wouldn’t be surprised if both companies issued profit warnings before the year’s out, which is why they’re high on my list of stocks to avoid.

5G is here – and shares of this ‘sleeping giant’ could be a great way for you to potentially profit!

According to one leading industry firm, the 5G boom could create a global industry worth US$12.3 TRILLION out of thin air…

And if you click here we’ll show you something that could be key to unlocking 5G’s full potential...

Continuing operations

Purplebricks is scheduled to issue a trading update on 7 November, followed by half-year results on 12 December. Late last year, it lowered its full-year revenue guidance from between £165m and £185m to between £165 and £175m and subsequently slashed it to £130m-£140m two months later. So it’s got form for missing expectations.

The UK and Canada have become the group’s continuing operations, as it’s exited Australia and the US. In the second half of its last financial year (1 November to 30 April), Purplebricks reported UK revenue of £41.8m, down over 13% from H1. Its Canadian business, acquired midway through H1, posted revenue of £14.5m for H2, which I estimate represents zero growth on H1. Annualising the UK and Canada revenue gives £112.6m.

For the current financial year, the City consensus, which I assume is for continuing operations, is revenue of £124.8m. With UK revenue falling 13% over the last reported six months, and Canada flat, I think the company’s going to struggle to meet the £124.8m market expectation.

In July, it said: “Current economic and political uncertainty in the UK means market conditions remain challenging with volumes continuing to trend downwards.” Just this week, Rightmove, in its latest monthly housing market update, reported the “number of sellers coming to market down by 13.5% compared to this time last year.”

In these conditions, I really can’t see Purplebricks doing the double-digit growth on last year’s UK/Canada H2 revenue run-rate that it needs to meet market expectations.

Existential crisis?

The aforementioned EY report revealed not only that 31% of FTSE retailers have warned on profits over the last 12 months, but also that 43% of these were from the apparel sub-sector and that 42% of all companies warning in Q3 had warned in the prior 12 months.

This is statistical double trouble for Ted Baker. As well as being a clothing retailer, it’s already warned on profits once this year (in June).

Interim results three weeks ago made for grim reading, with the company swinging to a loss before tax of £23m on 0.7% lower revenue, and slashing the dividend 56%. The shares fell heavily on the day, but my colleague Kevin Godbold’s review of the results concluded with him seeing “no greater value today than there was apparent yesterday.”

The company reported “significant challenges impacting our sector including weak consumer spending, macro-economic uncertainty, and the accelerating channel shift towards e-commerce.” Worryingly, Ted isn’t benefitting from the channel shift. It reported a 1.3% fall in its e-commerce sales.

I think there’s a high risk of a further profit warning in a trading update pencilled-in for early December. And with net debt of £141m, and borrowing facilities of just £180m, I fear the situation could easily develop into an existential crisis, requiring an equity fundraising.

5G is here – and shares of this ‘sleeping giant’ could be a great way for you to potentially profit!

According to one leading industry firm, the 5G boom could create a global industry worth US $12.3 TRILLION out of thin air…

And if you click here, we’ll show you something that could be key to unlocking 5G’s full potential...

It’s just ONE innovation from a little-known US company that has quietly spent years preparing for this exact moment…

But you need to get in before the crowd catches onto this ‘sleeping giant’.

Click here to learn more.

G A Chester has no position in any of the shares mentioned. The Motley Fool UK has recommended Rightmove and Ted Baker. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Our 6 'Best Buys Now' Shares

The renowned analyst team at The Motley Fool UK have named 6 shares that they believe UK investors should consider buying NOW.

So if you’re looking for more stock ideas to try and best position your portfolio today, then it might be a good day for you. Because we're offering a full 33% off your first year of membership to our flagship share-tipping service, backed by our 'no quibbles' 30-day subscription fee refund guarantee.

Simply enter your email address below to discover how you can take advantage of this.

I would like to receive emails from you about product information and offers from The Fool and its business partners. Each of these emails will provide a link to unsubscribe from future emails. More information about how The Fool collects, stores, and handles personal data is available in its Privacy Statement.