Shares in the Somerfield supermarket chain have dropped 47% following a grim trading statement.

The market reaction is not surprising

Rowan Morgan Peel Hunt

The company announced that this year's profits would not meet expectations.

And it said its chief executive Alan Smith was resigning only a week after the company's finance director quit.

Executive chairman John von Spreckelsen is now going to take sole charge of the business.

Disappointing the City

He and Mr Smith have been trying to revive Somerfield for the past two-and-a-half years.

John von Spreckelsen is trying to revive the firm

And the company said the programme of revamping its stores would continue.

But it said that market conditions had worsened and operating profits in the current year were likely to come in at a similar level to a year ago.

Analysts had been expecting the company to increase profits to about �40m ($62.4m) in the current financial year compared with �22.1m in the previous 12 months.

Investors take fright

The supermarket's share price had already been sliding because of concerns that it was about to warn the market of a downturn in trading.

The shops are poorly located and under-invested

Ian McDonald Numis Securities

Last week it surprised the City with the announcement that its finance director Martin Gatto would be replaced by Stephen Back, finance director at rival Budgens.

On Monday Somerfield's shares fell from 95 pence to 50p.

"The fall reflects the way things are piling up on each other, said Rowan Morgan, an analyst at Peel Hunt.

"You lose your finance director, then the chief executive, then you put out a trading statement saying it's pretty dire.

"The market reaction is not surprising. First there will be no profit recovery this year and secondly there are concerns about what you have got left in terms of management."

Rivals turn the screw

Somerfield, which also owns Kwik Save, has been squeezed by the intense competition between its bigger rivals.

"A few years ago you went to Kwik Save to buy branded products at low prices.

"But with Tesco and Asda turning the price screw, the reason to go is gone," said analyst Ian McDonald from Numis Securities.

"The shops are poorly located and under-invested. They are going to have a difficult time turning it around."