Toys and games designer and distributor Character Group (CCT:AIM) has been sent to the naughty step by investors, the shares crashing 15% lower to 379.4p on news profits for the year to August 2018 are expected to be ‘significantly below current market estimates’.
Management blames major customer Toys “R” Us' lurch into Chapter 11 bankruptcy protection in the US and Canada for the warning, which hammers an already weak share price.
TOY CUSTOMER TRAVAILS
New Malden-headquartered Character says overseas sales have been impacted by the travails of toy retailing giant Toys R Us, ‘which has had subsequent knock-on repercussions in every market where it trades (including the UK). Our international customers are also taking a very conservative approach to purchases.’
Just weeks into its new financial year, Character is therefore guiding estimates lower, although the warning is not entirely unexpected.
The company flagged challenging market conditions and the lack of ‘reliable visibility’ due to Toys R Us' woes in an update last month.
Today’s profit warning is rattling investors already unnerved by the sacking of Mark Dowding last month, the finance director having lost the confidence of the senior executive team.
GROUNDS FOR OPTIMISM?
Investors may find succour in the news management ‘believe this to be a temporary downturn’ and Character ‘anticipates returning to its previous growth pattern during the second half of the 2018 calendar year, and this ultimately is expected to be reflected in the financial performance for the year ending 31 August 2019.’
Underpinning management optimism is the fact that during 2018, Character will be introducing ‘exceptionally exciting new products, many developed in-house which, together with the current product portfolio will, the directors believe, give the group its strongest ever product line up.’
In July, Character announced the extension of its license for smash hit pre-school property Teletubbies for an additional three years, demonstrating the confidence that Teletubbies intellectual property holder DHX Brands has in Character’s ability to develop and commercialise the toy product portfolio.
More recently, the £93.3m cap has gained the UK and Ireland master toy distribution rights to the globally popular Pokémon brand.
Although the market is tough, Character, a progressive dividend payer which routinely buys back shares, expects ‘cash flow to remain positive, reserves to grow and Christmas stocks to remain under control.'