Allied Domecq profits warning rocks market

THERE WAS fresh evidence of a downturn in consumer spending yesterday when Allied Domecq, the spirits and pubs group, issued a profits warning due to a poor performance in its pubs division.

The group, whose interests span Beefeater gin, Baskin Robbins ice cream and the Big Steak pub chain, cited "eroding consumer confidence", which it said had intensified since last summer. It said the downturn was particular marked over the Christmas period with drinks sales falling, although food sales had held up.

The warning knocked 14 per cent per cent from Allied's share price, prompting a raft of profit downgrades from brokers and depressing share prices elsewhere in the pubs and brewing sector. Shares in Bass and Scottish & Newcastle fell sharply, while Whitbread closed lower ahead of a trading update today.

"What we are seeing is some of the dark side of the change of pubs into places to have a meal," said John Wakeley, analyst at Lehman Brothers. "Restaurants are much more cyclically sensitive... and clearly a large part of the UK is suffering in terms of consumer confidence."

There was more bad news elsewhere in the sector, where the Old English Pub company announced that it had become a corporate victim of the flu outbreak sweeping Britain. The group, which operates "rustic" inns with accommodation, partly blamed the outbreak for a 2.9 per cent fall in like- for-like sales over Christmas. "We were hit by the epidemic, which resulted in several cancellations over Christmas and New Year," the company said. Trading was also affected by a move away from alcoholic beverages towards soft drinks, it said. Corporate bookings were down over the extended holiday period.

The Allied warning rocked a sector which had appeared to be recovering after upbeat statements last week from pub groups JD Wetherspoon and Yates Brothers Wine Lodges.

Allied's pubs operate under brand names such as Firkin, Scruffy Murphy's, Mr Q's and Big Steak. The group said food sales had held up well in pubs such as the Big Steak outlets, but drinks sales had weakened and customer numbers fallen. The company said: "Early evidence shows that our performance has mirrored the market trend in the pre-Christmas months. Sales were lower over the Christmas period, and first-half pub profits will therefore be lower as a result."

There was better news in spirits, where Allied said there had been some growth in major markets in the first four months of its financial year. In Europe, Ballantines scotch whisky volumes grew strongly and Beefeater gin did well. Trading in Mexico has been difficult due to duty rises, illegal bottling and tough economic conditions.

The group defended its decision to sell Cantrell & Cochrane, its Irish cider and soft drinks business, which was sold to BC Partners Venture Capital for pounds 519m.

Allied, whose talks with Seagram of Canada to create a wine and spirits alliance foundered last year, further hinted that talks between the two - and others in the industry - could be revived.

"There is little doubt in our minds that a combination with another group, with the right management team, would undoubtedly result in substantial synergies," said Sir Christopher Hogg, the chairman.