Woolworths alarmed the high street yesterday with a pre-Christmas profit warning that knocked shares throughout the retailing sector and prompted a series of downgrades.

Shares in Woolworths recouped earlier losses to close down 7.5 per cent at 34p last night, after the retailer said that in order to hit the lower end of its forecasts it would need to see an immediate uplift in sales and margins.

Trevor Bish-Jones, chief executive of Woolworths, said: “We would be reasonably confident that will happen, but we can’t be slam dunk sure that will happen.”

The retailer reported a slide of 6.5 per cent in like-for-like sales during the past two months, dampened by fewer customers in October and November, and increased costs from its move into multichannel retailing.

Mr Bish-Jones said that the company had suffered from “aggressive” pricing by rivals and lower sales of entertainment products, such as CDs and DVDs.

He added that the delay of PlayStation 3, as well as a supply shortage of the Nintendo Wii, were contributing factors, but said that sales of toys remained strong.

The warning hit shares in rival music and DVD retailers, sending HMV down 7p to 164p. WH Smith lost up to 20¼p initially, before recovering to close down 4p at 380p.

Analysts moved to downgrade their full-year forecasts for Woolworths, with Seymour Pierce saying that investors “shouldn’t bank” on the company making the lower end of a profit forecast range of £26 million to £41.6 million. The broker cut its estimate for the year from £32 million to £21 million.

Richard Ratner, an analyst for Seymour Pierce, said: “It is extremely unusual for a retailer to come in with a profit warning at this stage”. He said, however, that he did not believe that the warning would trigger a bid for Woolworths, a past subject of private equity interest.

Shore Capital also cut its full-year estimate — by £10 million to £25 million — and reduced its target for the next year. “We see no reason to give Woolworths the benefit of the doubt and assume any form of recovery from this year,” the stockbroker said.

Analysts welcomed a 160 per cent increase from multichannel sales on last year.

Retailers have reported mixed fortunes in the run-up to the Christmas trading period. The department stores group John Lewis posted strong sales. Others have complained that shoppers were holding back in the hope of finding bargains.

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