Hornby’s (LON:HRN) share price tanked 45% after it warned losses would hit £6mln.
The model railways and toy car maker said New Year sales had been poor costing it £2.5mln.
January promotions that failed to win over UK customers were partly to blame.
The trading loss is significantly wider than previously forecast, meaning the group is in danger of breaching covenants with its bank, Barclays.
It was the latest in a series of disappointments for Hornby, which has been plagued by problems since an overhaul of its computer and stock management systems caused UK sales to plummet over the summer.
Following the reorganisation of its European subsidiaries, Hornby expects a £1mln write-off at its Hersden warehouse.
Hornby was also hit hard last year after its China-based supplier failed to deliver stock to retailers.
However, directors assured investors that it was full steam ahead for its turnaround strategy and were investigating the causes for the poor start to the year.
"This has been a real year of change at Hornby.
“Undoubtedly this is a disappointing result, but we have a strong portfolio of brands that we are determined to see flourish,” said chief executive Richard Ames.
Hornby shares fell 36.5p to 44.5p.