STRUGGLING supermarket chain Somerfield parted company with its chief executive after warning profits were likely to be hit by poor sales.

The Bristol-based company said Alan Smith had agreed to step down and that executive chairman John von Spreckelsen would be taking sole charge of the business.

Somerfield's shares dived 38% as investors reacted to the warning, wiping £183 million off the retailer's market value.

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

Somerfield claimed that market conditions had worsened and operating profits in the current year were only likely to come in at a similar level to a year ago.

Like-for-like sales across Somerfield's 1,300 stores, which include the Kwik Save chain, rose 1.7 per cent in the first seven weeks of the second quarter.

It added: "On the assumption that market conditions remain unchanged the board estimates that operating profit for the full year is likely to be similar to last year's level."

Shares in Somerfield have fallen 12 per cent since the start of the month on concerns the group was preparing to warn the market of a downturn in trading.

Mr von Spreckelsen, who joined Somerfield from Budgens in early 2000, said he had enjoyed working with Mr Smith during the past two-and-a-half years.

He added: "On behalf of the board, I would like to thank him for his significant contribution to the business."

Mr Smith has a rolling one-year contract and was paid a basic salary of £410,000. The group said the terms of his departure were yet to be finalised.

Somerfield's shares rose to over 450p in 1998 when it merged with the Kwik Save business in a £1.2 billion deal put together by former boss David Simons.

The group has since seen sales haemorrhage after struggling to integrate the chain and being hit by intense competition from the likes of Asda and Tesco.