Model train maker Hornby Plc (LON:HRN) has once again warned investors that it will likely record a heavier-than-expected loss this year after it endured a miserable Christmas.
The festive season is typically a lucrative period for retailers, especially toymakers, but AIM-quoted Hornby said its performance was “below management expectations”.
To make things worse, the shortfall in revenue over Christmas means that the underlying loss after tax for the year to March 31 is expected to be larger than what the firm had previously guided for.
It is not the first time the Scalextric owner has issued a profit warning in the current financial year; it did so in September and again a month later.
Yet to see benefits from new strategy
Chief executive Lyndon Davies was drafted in back in October to turn the company around, and brought with him a new strategy that would see it stop bulk-selling its products at heavily-discounted prices.
The idea is to “maximise the value of [Hornby’s] brands over the long-term”, but despite support from some of its retail partners, others haven’t been t too keen on the new approach and have either reduced their orders or cancelled them altogether.
Davies cautioned at the time that full-year results would be affected by the move, although he didn’t expect things to have gone as badly as they have.
Hornby also cited a “continuation of late product deliveries” in the international segment as another reason for the disappointing sales.
Both of these factors had an equal impact on the underperformance of the business, the company said.
Cost-cutting endeavours more successful
With management knowing that sales will take a hit this year as it tries to implement the new plans, cost-cutting has been a key focus.
To that end Hornby has fared significantly better, with the new senior team slashing fixed overheads by £1.7mln in the months it has been place, while it also thinks more “efficiencies” can be achieved in the coming months.
More volatility ahead, says CEO
“We remain committed to the strategy that was outlined in the half year results,” said chief executive Davies.
“The change has meant that the Christmas trading period was tough and there is likely to be some more volatility as we find out how off-peak trading performs for the first time in years without discounting.
“Despite this, we are determined to weather the storm and come out the other side with stronger brands, loyal customers, a leaner cost base and a better foundation from which to build a profitable and growing business.”
Shares were down 11.4% to 21p in morning trading on Thursday.