UK high street chain reports falling sales

The trading woes at Woolworths deepened today after the retail chain reported a sharp deterioration in sales and margins during June and July.

Shares dived 13% after Woolies said like-for-like sales fell 6.7% in the six weeks to July 26, with margins also under pressure because a greater proportion of trade came from CDs and DVDs, rather than higher margin sales of warm weather outdoor products and clothing.

The company, which is currently searching for a new chief executive, also said it had been told by consultants that Woolies had the potential to build a sustainable business based on its small and medium-sized stores.

Further details on the company's review of its business will be included with half-year results in mid-September. It currently has around 800 stores.

Woolworths said it had already decided it was not the right time to sell its 40% stake in 2entertain, its DVD publishing joint venture with the BBC. DVD and CD wholesaling business EUK also has good growth prospects, it added.

Chairman Richard North said: "Our EUK and 2entertain business are continuing to trade well. The retail business, however, has seen a marked worsening of conditions in June and July in an increasingly competitive market. This is reflected in the sales figures for the last six weeks.

"In addition, sales over the first half as a whole have been achieved with a disappointing margin performance."

First quarter figures reported in mid-June showed a 2.2% drop in like-for-like figures for the 19 weeks to June 14.