HIT Entertainment, the company which owns the rights to Bob the Builder and Thomas the Tank Engine, yesterday warned its profits would take a sharp hit after a major US retailer cut back its order for children's DVDs and videos.
Shares in HIT collapsed to a 14-month low after the company said pre-tax profits will miss City forecasts by as much as 20 per cent. This could take as up to £8m off profit estimates, bringing them down to £34m. Shares in HIT closed more than 28 per cent down at 210p, wiping £131m off the company's market capitalisation.
The company, which gets 60 per cent of its business from the US, said one of its main retail partners unexpectedly decided to reduce the shelf space it planned to allocate to children's videos and DVDs. A spokesman for HIT said the retailer had recently upped its shelf space dedicated to children's DVDs and videos and, in anticipation that this arrangement would last, HIT shipped out additional stock to fill its stores. The company must pay for the goods to be returned and will lose sales. Some 42 per cent of its sales are of DVD and video products.
Analysts were surprised by the extent of the profits hit. "For this to have had such an impact 11 months into its current trading year suggests a pretty sizeable stock write-down," analysts at Bridgewell Securities said. There are now fears that other retailers may follow suit.
But the company, which is also behind the Angelina Ballerina and Barney the dinosaur characters, dismissed the news as an unavoidable risk "Despite this disappointing development, HIT remains a highly profitable company with one of the strongest portfolios of young children's properties," Rob Lawes, the chief executive, said.
HIT is the fourth-largest distributor of children's videos in the US and is planning a 24-hour television channel there for pre-school children.