Woolworths lurched deeper into crisis yesterday as it abandoned the planned sale of 2entertain, its DVD publishing business, and admitted that a recent collapse in sales meant that it would again miss its profit targets.

The embattled retailer, which has yet to appoint a chief executive to succeed Trevor Bish-Jones, said that revenue in the 25 weeks to July 26 had fallen 3.1 per cent, with sales at stores open for at least a year down 6.7 per cent in the past six weeks.

Richard North, the chairman, blamed the wider economic malaise rather than company-specific problems. He said: “This is without doubt due to the economic situation that we are facing with a lot of other retailers.”

Woolworths, which runs 800 stores across the UK, has issued five profit warnings in three years, more than most big retailers and starting before the present economic downturn.

The search for a successor to Mr Bish-Jones, who left in June after more than six years seeking to resolve the group's problems, is far from over and will be delayed by the summer holiday season. Mr North declined to say when a new chief might be appointed.

He said: “We are doing a lot of analysis and a lot of strategic thinking so that when the new chief executive arrives he won't have to start from scratch. The issue is retail and that's no great surprise.”

Mr North said Woolworths was likely to focus on the more robust small and medium-sized stores within the chain. It is understood the company may sell its larger stores or bring more concessions from other companies into them. Woolworths said a larger proportion of sales came from CDs and DVDs, which have lower margins, while a smaller proportion came from higher-margin warm-weather outdoor products and clothing.

The retailer also disclosed that it would not sell its £200 million stake in 2entertain, the DVD publisher, which is likely to worry its pension fund trustees, who were hoping that a sale would let Woolworths put £50 million into the group's pension deficit.

Woolworths is understood to have worked with advisers from UBS to weigh up a sale of the growing DVD business. The City had believed that a sale was near and that it would cut the group's high debt and plug its pension deficit.

Some analysts had estimated the 2entertain stake to be worth up to £200 million, more than double the group's market value of £82 million. 2entertain is a joint venture with the BBC to publish the broadcaster's back catalogue, including including Planet Earth and Little Britain. Its 2007 sales rose 23 per cent to £250 million.

Management said in a statement: “Having carried out a detailed review of our options in relation to our 40 per cent holding in 2 entertain, the board has concluded that it would not be right to crystallise value at this time.”

Shares in Woolworths plunged to a low of 5.55p yesterday, down 14.5 per cent from Monday's closing price and a mere tenth of their high of 55.5p.

Analysts were quick to criticise the Woolworths management. Philip Dorgan, of Panmure Gordon, said: “The break-up scenario looks in tatters.”

Gillian Hilditch, of Cazenove, said that the 2entertain decision would be a blow to those shareholders hanging on in hope of a sale and a cash return.

Stock history

— The first Woolworths in Britain opened in Liverpool in 1909, a subsidiary of the American FWWoolworth Company

— In 1982 the British Woolworths separated from its American parent, which has since become FootLocker, the sportswear chain. It was acquired by Paternoster, which then became Kingfisher

— Woolworths listed on the London Stock Exchange in 2001 after demerging from Kingfisher

— It has 819 stores in the UK selling toys, children's clothes, household goods, confectionery and DVDs Woolworths owns 40 per cent of 2 entertain, the DVD, video and music publisher

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