British sweets-to-DVDs retailer Woolworths issued a profit warning, blaming a marked downturn in trading conditions, and scrapped plans to sell out of DVD publisher 2 entertain, sending its shares to a new low.

The 100-year-old group, which last month agreed to part company with Chief Executive Trevor Bish-Jones, said on Tuesday it planned to rebuild its retail business around its more profitable small and medium sized stores.
But analysts said it faced an uphill struggle.

"Woolworths trading statement is dreadful," said Panmure's Philip Dorgan. "Any talent thinking about taking the (chief executive) job will doubtless be unimpressed by the board's strategic review."

At 0850 GMT, Woolworths shares were down 13.3% at 5.63 pence, off a new low of 5.5 pence and valuing the business at about £85 million ($169 million). The stock has slumped over 80% in value over the past 18 months, hit by growing competition from supermarkets and the Internet.

Woolworths, which runs over 800 shops selling items from garden furniture to children's clothes and toys, said like-for-like sales fell 6.7% in the six weeks to July 26.

Gross margin for the 25 weeks to July 26 was down 125 basis points due to strong sales of low margin entertainment products and weak sales of high margin outdoor products and clothing.

Finance Director Stephen East said the group was likely to make a larger first-half loss than last year and that analysts' full-year profit forecast was also likely to fall.

"One would be expecting that to come down," he said of the profit forecast, which he put in the "mid £20 million".

Panmure's Dorgan pencilled in a first-half loss of £75 million and a break-even result for the full year, adding the group was unlikely to pay a dividend.

Chairman Richard North said plans to focus on small and medium-sized stores did not mean the group was looking to shrink or to sell off larger premises.
It could put concessions into larger stores, he told reporters on a conference call.

Woolworths recently sold four stores to supermarket group Waitrose and when asked whether more such deals could happen, North said: "Not in the next few months. But who knows?"

Woolworths said that following a strategic review it had decided to retain its 40% stake in 2 entertain, which is majority owned by state-owned broadcaster BBC.

It also said it had decided to mark down and clear a proportion of catalogue stock at Entertainment UK, its music, DVD and games distribution business.