End of the 'Rings' cycle puts Games Workshop to the sword

Games Workshop, the model toy retailer, shocked the market with its second profits warning in nine months yesterday, claiming it was still suffering from the decline in interest in the Lord of the Rings phenomenon - which helped boost sales between 2001 and 2004.

Shares in the company fell 15 per cent to 319p. The stock is now worth almost two-thirds less than it was just 12 months ago, with yesterday's fall taking its market value back below £100m.

The profits warning came as the company published its results for the six months to 27 November - an announcement which was not originally due until the end of the month. Over the period, total revenues fell 20 per cent to £57.1m, while operating profits almost disappeared, down from £7.9m in the same period last year, to just £0.5m.

Games Workshop saw the beginning of a boom in its sales four years ago, after the release of the first of the Lord of the Rings films. The release of the sequels over the two subsequent Christmases helped sustain the boom. More than two years on since the final instalment of the trilogy, the positive effect on the company has begun to wear off.

Tom Kirby, the chairman and chief executive, said in spite of the poor performance, the prospects for the company remained strong.

"Our sales for the five weeks to 1 January 2006 show a year-on-year decline of 17 per cent," he said. "We can now see that our full-year sales, and therefore profits, are likely to fall short of current market expectations. This is why we have brought forward the timing of our interim results announcement this year.... However, the directors firmly believe that the prospects for the business remain very good."

Despite the slump in sales, the group said its margins had eroded only slightly - from 70.5 to 69.1 per cent - adding that it had also achieved a significant reduction in its overheads, from £42.2m to £39m. The group opened 17 stores during the year, taking its tally to 336.

Mr Kirby added: "We remain confident that we will re-establish our sales growth by continuing to open new stores and by ensuring that our in-store activity of introductory gaming, painting lessons and other structured hobby events is well delivered."