Shares in Studio Retail Group, the online trader whose largest shareholder is Mike Ashley's Frasers Group, have plunged after warning its profits are set to be lower than market expectations and is to raise its prices.
The Lancashire-headquartered listed company has said its adjusted pre-tax profits for its full financial year are not likely to be between £28m and £30m, down from the current market expectation of £35m.
The business added that demand in the early weeks of January has been "relatively subdued, with some margin erosion as we cleared some seasonal stock that could not be carried forward".
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It said that this has been partially mitigated through the bad debt performance, which was better than expected particularly due to improvements in the recovery rates achieved on defaulted debts.
Following the update, which was issued to the London Stock Exchange, the group's share price slumped by more than 35%.
Studio Retail Group said it is also likely that some of the actions to improve short-term working capital will further reduce margin in the remaining weeks of the year.
He added that it has also incurred some further costs linked to the shipping delays and port congestion.
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A statement added: "The third national lockdown at the start of 2021 created unusually active and favourable trading conditions for Studio in Q4 last year.
"We expect to revert to more normal trading conditions in Q4 this year, assuming no further lockdown restrictions.
"This is also a period where consumers traditionally spend less on discretionary retail, and this is likely to be compounded due to the higher living costs, notably fuel and energy price increases.
"We therefore plan to take a more cautious approach to growth in the coming months to bolster our capabilities and resources for later in 2022, and in line with the broader market, we are also increasing selling prices in Q4 and into FY23 to offset some of the inflationary cost increases."
Group CEO Paul Kendrick said: "The fundamentals of Studio's business model are solid, notwithstanding the market challenges that have been exacerbated by our over-commitment to stock in the near term.
"The trading performance over Christmas, with sales up 18% over two years, shows our offer is resonating with a customer base of 2.3m.
"We will continue to drive the long-term profitability and success of the group."