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Hornby shares crash after Olympics disappointment Hornby shares crash after Olympics disappointment
(about 7 hours later)
On its website Hornby boasts that its Corgi die-cast Olympic figurine collection will become a "lasting legacy of a monumental moment in sporting history". On its website Hornby promised its die-cast figurines of Olympic mascots Wenlock and Mandeville would become a "lasting legacy of a monumental moment in sporting history".
But bosses probably didn't expect its own Olympic legacy to be a surprise profit warning, as the company admitted on Tuesday that poor sales of its London 2012 products will contribute to the business failing to turn a profit this year. Instead piles of unsold box sets of the Cyclopean duo have become an unwelcome legacy for the British firm which said that the games had been a financial disaster. Despite the patriotic fervour gripping the nation, Britons apparently turned their noses up at T-shirts, soft toys and knick-knacks emblazoned with the ubiquitous Olympic logo and Union flags, forcing retailers to slash prices and cancel orders.
The Olympic-branded buses, taxis, Scalextric sets and model railways, among others, had hoped to bring in £2m profit. Instead it will deliver a £1m loss. The news sent Hornby shares tumbling 35%. At the start of the summer of sport Hornby boss Frank Martin had been confident after early sales of novelty products, which included a fleet of 40 different London taxis decorated in the livery of Olympic sports, proved strong. "We've been selling hundreds of thousands of them, and 2012 London buses, and we've had a huge sales of replica Olympic torches," he said in June.
The company said consumer purchases were initially encouraging before the Games but major retailers then "resorted to deep price discounting" once sales began to miss forecasts. That optimism saw the company – which traces its roots back to 1901 when Frank Hornby received his first patent for Meccano – pencil in a £2m profit from Olympics paraphernalia. But on Tuesday the deflated company admitted that figure had sunk to a £1m loss – a disastrous outcome that would wipe out this year's annual profits. With Olympic stock languishing on its website reduced in price by 85%, the bad news knocked 35% off the company's share price.
"The consequence of this for Hornby was that retailers lost confidence in many categories of London 2012 merchandise, and repeat orders for our products were cancelled," Hornby admitted. Hornby is not the first to suffer due to the high expectations that the Olympics would bring untold riches and boost the country's flagging economy. Hotels in London recorded bookings down 35% in the build-up to the Games after long-haul travel operators advised against visiting the capital.
The company is not the first to suffer due to the high expectations that the Olympics would bring untold riches. Advanced bookings to London from Europe were down 90%, theatre ticket sales dropped 20% and many restaurants reported a drop off in trade. Numerous retailers such as Next have blamed the Olympics for affecting trade, with shoppers preferring to stay at home during August to watch the games on television rather than spend in stores.
Hotels in London recorded bookings down 35% in the build-up to the Games after long-haul travel operators advised against visiting the capital. Games organisers Locog dished out licences to 65 companies to produce spin-off merchandise with 10,000 products in circulation according to some estimates. It aimed to raise some £80m from the licensing agreements and subsequent royalties. A Locog spokesman said it was still totting up the final figures but "early indications are that we will probably hit that".
Advanced bookings to London from Europe were down 90%, theatre ticket sales dropped 20% and many restaurants reported falls in customers. Martin, however, painted a grim picture of the company's experience, which was reflected in the official retail sales figures for August which showed a small decline on the previous month. "Whilst prior to the games, major account listings for our products were strong, and consumer purchases were encouraging, the major retailers had also purchased substantial quantities of London 2012 merchandise from other licensees," he said.
Hornby also revealed ongoing suffer supply chain problems with one of its biggest suppliers in China will continue until the end of the financial year. "Faced with lower than expected sales, the major retailers resorted to deep price discounting," he said. "The consequence of this for Hornby was that retailers lost confidence in many categories of London 2012 merchandise, and repeat orders for our products were cancelled."
It said: "The directors now believe that the group will not achieve its forecasts for the current financial year and, therefore, anticipate that the group's results will be approximately break-even for the financial year." The hole in sales left by the Olympics compounds what had already been a difficult year for Hornby which has also seen demand for its famous model railways, Scalextric and Airfix models tail off as young Britons devote their free time to the latest computer game rather than more traditional pursuits. To broaden its appeal the company has teamed up with major brands, including Disney and Lucasfilm, to bring older toys up to date.
Analysts at Numis, the company's in-house broker, said: "While neither of these issues should affect the core business over the longer term, we see potential for the supply disruption to persist next year."
It added: "Where the group had originally envisaged the Olympics providing a £7m fillip to revenue and £2m of profit, it is now expected to result in a £1m hit to the bottom line."
Just two months earlier Hornby's chairman Neil Johnson told the company's AGM how excited the firm was about the upcoming Olympics.
He said: "The London 2012 Games are about to commence and we have extensive plans in place to maximise our sales of London 2012 products over the coming weeks.
"The majority of our London 2012 products, such as our Great British Classics die cast vehicles, will continue to have commercial appeal after the Games."
However, this morning, Hornby's website was offering its entire die-cast collection at a 75% discount, while other products were discounted by up to 85%.
Hornby has had tie-ups with other major brands in the past few years, including Disney and Lucasfilm – the makers of Star Wars – and all have been successful, until now.