A fourth profit warning in three years from model railway and Scalextric owner Hornby (HRN:AIM) suggests its products simply haven’t kept up with the changing tastes of the British public.
The £44.5 million cap has warned its full year loss will be substantially wider than expected, to the tune of £6 million, because of a disappointing response to January product promotions and poor underlying sales in the UK.
This is far worse than the £2 million loss the company predicted when it issued a profit warning back in November. The news sends the shares hurtling down 34.6% to 53p.
Although UK sales in February and March are expected to improve on January, they won’t reach the group’s previously anticipated levels.
Hornby has been through an expensive restructuring process, which included a reorganisation of its management team, a move to a more modern warehouse in the UK, an IT upgrade and changes to the distribution operations of its European subsidiaries.
This turnaround plan has clearly flopped. Although UK sales recovered in November and December, rising 17% year-on-year, they have since slumped.
The changes to the logistics, stock handling and distribution operations meant international like-for-like sales rose by 5% in December and January, but this was still significantly behind Hornby’s expectations.
The company says there’s a risk it will breach a covenant of its banking facility in March 2016.
The bottom line is that customers aren’t buying Hornby’s products anymore. Scalextric belongs to the 1980s and model railway is a niche product sold to hobbyists.
The recently-revived Dreamland theme park used Hornby's old warehouse in Margate to restore salvaged rides and signage. Perhaps it could find a way of sprucing up Hornby's own product lines?