Hornby in profits warning as Olympics sales disappoint

Hornby said initial orders for its London 2012-related products had been good

Model maker Hornby has said it will not make a profit this year, due to disappointing sales of London 2012 merchandise and supply problems.

Lower-than-expected sales of Olympics products meant retailers cancelled repeat orders, it said. It also expects substantial disruption to production at a major supplier in China.

With consumer spending still depressed, the firm now only expects to break even in the 2012-13 financial year.

Last year, it made profits of £4.5m.

Following its latest trading update, Hornby's shares fell more than 40% to 50 pence in the first few minutes of trading.

Hornby, which owns the Scalextric and Corgi brands, gained the licence to sell a range of London 2012 merchandising, including replica mascots and a Scalextric velodrome.

"They were expecting a big boost from the Olympics and it just didn't come through," said Matt Piner, from retail consultants Conlumino.

"There was a very brief window for selling these souvenirs, as soon as the Games finish they are worthless, and it is a very crowded marketplace," he told BBC News.

Hornby blamed disappointing sales of other firms' merchandise for retailers cancelling repeat orders.

The company said that initial orders before the Games had been good, and consumer purchases of Hornby goods "encouraging".

But retailers had bought large amounts of 2012 merchandise from a range of companies and had to slash prices after slow sales, Hornby said.

"The consequence for Hornby was that retailers lost confidence in many categories of London 2012 merchandise, and repeat orders for our products were cancelled," it said in a statement.

This year, the firm said its performance would be "constrained significantly".

It said it would try to find alternative sources of products to try to reduce the disruption created by its Chinese supplier, which is rationalising its manufacturing.

This supplier currently represents 35% of Hornby's purchases, but at its peak had accounted for about 75%.

Mr Piner warned the supply problems could cause "lasting damage", since if retailers had any doubt about whether orders will be fulfilled, they could go elsewhere.