Toy firm Hornby issues profit warning after disappointing sales of London 2012 merchandise

The Olympic legacy for Hornby amounts to a £1m loss as opposed to profits that were forecast to be around £2m. (GETTY IMAGES)

The toy firm Hornby today issued a profit warning following disappointing sales of London 2012 merchandise.

The Olympic legacy for Hornby amounts to a £1m loss as opposed to profits that were forecast to be around £2m.

The group had been hoping that merchandise sales would allow it to bounce back into profit, however, demand for models was significantly lower than expected.

The Hornby 2012 range includes models of London buses, taxis, 2012 branded train sets and a Scalextric velodrome cycling set.

The company has been hit hard by the recession and weak consumer spending. It has seen profits fall from £4.5m to £3.4m in the year to March 31.

The company has also faced major disruption to one its suppliers in China and is now expected to break even in the financial year. A Chinese company that supplied more than a third of Hornby's purchases has announced it is rationalising its facilities.

Shares in the company fell by over a third following today's warning.

In June the company had said that sales of Olympic merchandise were 'gaining momentum'.

However, deep discounting by retailers along with poor sales overall has led to a reduction in the profit forecast. The company also said that substantial quantities of other London 2012 goods meant sales had failed to deliver.

“Retailers lost confidence in many categories of London 2012 merchandise and repeat orders for our products were cancelled,” it added.

The group said it would be “constrained significantly” in the current financial year, but would keep a tight lid on costs and had “redoubled efforts” in product development and innovation in order to turn sales around.

The company, which is based in Margate, Kent, is now offering up to 85% off its Olympic and Paralympic ranges.