The owner of the W7 makeup brand has blamed a slump in Christmas orders from British retailers for a profit warning that has wiped more than 40% off the value of the company.
Warpaint London, which listed on the junior stock market two years ago, supplies high street chains including Primark, Boots and Superdrug with its low-priced lipstick, eyeshadow and nail polish, as well as cosmetics gift sets.
The firm was founded by Sam Bazini and Eoin Macleod, entrepreneurs who started out selling cosmetics from market stalls. The setback means Warpaint London, which also makes cosmetics under the Technic and Man’Stuff brands, now expects annual profits to be between £8.5m and £10m. Before the alert, analysts had pencilled in £12m.
The disappointment weighed heavily on the company’s shares, which by lunchtime on Monday were down 45% to 112p, wiping out nearly all the gains made since listing at 97p in November 2016.
The Buckinghamshire-based group, which last updated investors six weeks ago, said it had experienced a further softening in demand, with retailers reducing stock levels and Christmas orders. Strong sales growth in the US and mainland Europe did not make up for the shortfall in its important domestic market, the company said.
Last week Debenhams said that after several years of growth the UK beauty market had slowed this year. The struggling department store chain blamed sluggish demand and rivals cutting prices for the 0.8% decline in its beauty hall sales in the year to 1 September.
Retailers are suffering as little real-wage growth, coupled with inflation, puts pressure on household budgets – leading potential customers to stay away from shops. The BRC-Springboard footfall tracker showed numbers dropping by 1.7% in September.
For many retailers, the weeks to Christmas are the most lucrative. But this year store bosses are nervous after last month’s GfK consumer confidence index sank further into negative territory as the uncertainty around Brexit hits sentiment.
“While the current UK market conditions are challenging, we are seeing strong growth in our overseas sales,” said Bazini and Macleod.
“We remain well-positioned to take advantage of any improvement in UK market conditions and will continue our strategy of growing and diversifying our international sales. Warpaint is a profitable and cash generative business that is well positioned for continued growth.”