Hornby Trading update - positive

[ruggedpeak]

Hornby Plc ("Hornby" or "the Group")

Trading Update

Hornby Plc, the international models and collectibles Group, is today updating shareholders on trading for the period from 1 October 2023 to 31 December 2023.
 

Business Performance 

Group sales for the third quarter covering the third quarter to 31 December 2023 were 5% ahead of the same period last year. For context and comparison, the British Retail Consortium reported UK non-food sales decreased by 1.5% on a Total basis over the three months to December.

Cumulative group sales for the financial year to date are ahead of last year by 6%.

A strong programme of activity around Black Friday contributed to 10% revenue growth vs last year for the month of November. More than 50% of all Black Friday transactions came from first time purchasers, demonstrating acquisition of new customers to our brands in this key promotional period. Acquiring new customers in these naturally buoyant trading periods is critical for feeding our new CRM programme that drives further purchases over time and we have already seen positive impact since launch in September. 

Our direct to consumer sales continue to increase and are 30% ahead of the same period last year.

Our margins for the quarter were 46%, up from 43.8% at the half year, reflecting the increase in direct to consumer activities and the additional full-price sales driven as a consequence of the uplift in web traffic.
 

Financial Position

Net debt at the end of December 2023 was £13.5 million compared to net debt £14.6 million at the end of September 2023. The Group retains a strong funding position with significant liquidity headroom available against its existing facilities.

Inventory is £22 million, down from £24 million at the end of September 2023 as a consequence of our ongoing focus on reducing aged stock in tandem with driving sales of newer product.
 

Outlook

Our current forecast to year end March 2024 remains on track for year on year growth, and we continue to work on responsibly reducing the excessive, historical, inventory position through the remainder of the year.
 

Olly Raeburn, CEO, commented:

"As outlined in our Interim results to end of September, this is a year of significant strategic, structural and operational change, requiring investment in many areas. We continue to make good progress on our key strategic initiatives and look forward to a return to profitable growth in the next financial year"

Hornby will announce its preliminary results for the year ended 31 March 2024 in June.

 

https://polaris.brighterir.com/public/Hornby/news/rns/story/xe1qvnw

[ColinB]

I think you have to be a cautious about the railway figures. Up to Christmas 2023 they seem to have released far more locos than they did in the same period in 2022. Then there was the fact that previous to 2023 there had been two batches of huge price rises, so a lot of people, me included, put orders in to Hornby direct so as to fix the price. For 2024 I have started going back to Retailers as I no longer get the 10% discount from the club and I suspect in the current climate I doubt the prices will rise that much. So yes the outlook looks good but there are a lot of things to consider. 

Edited January 17 by ColinB

[JSpencer]

The "More than 50% of all Black Friday transactions came from first time purchasers, demonstrating acquisition of new customers to our brands in this key promotional period." is an interesting statement and I wonder how this was calculated.

My hunch, this is probably referring to people buying directly from Hornby themselves for the first time as I doubt they could get this kind of black Friday info from retailers themselves.

But buying directly from Hornby themselves for the first time is a bit of stretch to then say "demonstrating acquisition of new customers to our brands". Unless they did a survey asking them if they had brought Hornby products before, which would be a surprise.

I suspect most were people like us.

 

On the changes to inventory vs changes to debt, this seems to still hint at some difficulties in getting out of debt. So more fine tuning to come.

 

 

[micklner]

49 minutes ago, JSpencer said:

The "More than 50% of all Black Friday transactions came from first time purchasers, demonstrating acquisition of new customers to our brands in this key promotional period." is an interesting statement and I wonder how this was calculated.

My hunch, this is probably referring to people buying directly from Hornby themselves for the first time as I doubt they could get this kind of black Friday info from retailers themselves.

But buying directly from Hornby themselves for the first time is a bit of stretch to then say "demonstrating acquisition of new customers to our brands". Unless they did a survey asking them if they had brought Hornby products before, which would be a surprise.

I suspect most were people like us.

 

On the changes to inventory vs changes to debt, this seems to still hint at some difficulties in getting out of debt. So more fine tuning to come.

 

 

Smoke and Mirrors and Sweeping Statements commonly known as Bull Ship !! .

 

Unless every 'first time buyer" answered a questionarre saying so?, simply impossible for Hornby or anyone else to know or prove otherwise. Hornby live in hope.

[PeterStiles]

Can't we just say "hey, Hornby did well for a bit" and be happy about it?

[ruggedpeak]

Just now, PeterStiles said:

Can't we just say "hey, Hornby did well for a bit" and be happy about it?

Was just typing the same in a more long winded manner!

 

Goodness me the positivity leaps off the page! 🤣

 

It's a quarterly update but debt is down, inventory is down, sales are up more than the retail market, direct sales up 30% so that investment seems to be paying off, margins up, new customers will presumably be registrations on their website so new to buying direct from Hornby. Been a while to see so many things moving in the right directions together. True, they won't overtake Apple as the world's biggest company for another couple of months yet but it is still going the right way.

 

Converting existing purchasers of Hornby product (bought at retail) into direct customers will be included within that, and since it increases Hornby's margins then for them it is a good thing. As they say, this feeds into their CRM, but it will be a tough test of their sales & marketing ability to turn those new customers into long term customers.

[1andrew1]

After the negative news generated by Warley and Hattons, good to see some positive news. 

[Nova Scotian]

4 hours ago, JSpencer said:

The "More than 50% of all Black Friday transactions came from first time purchasers, demonstrating acquisition of new customers to our brands in this key promotional period." is an interesting statement and I wonder how this was calculated.

My hunch, this is probably referring to people buying directly from Hornby themselves for the first time as I doubt they could get this kind of black Friday info from retailers themselves.

But buying directly from Hornby themselves for the first time is a bit of stretch to then say "demonstrating acquisition of new customers to our brands". Unless they did a survey asking them if they had brought Hornby products before, which would be a surprise.

I suspect most were people like us.

 

On the changes to inventory vs changes to debt, this seems to still hint at some difficulties in getting out of debt. So more fine tuning to come.

 

 

This was certainly the case for me.

 

I ordered the 6w PBA Sentinel - I had issues with my chosen shop online and didn't want to miss out, so made my first ever Hornby shop online purchase. My next purchase returned to my preferred retailers. I'm not a brand acquisition, but was looking for a "deal" on a decent shunting loco. 55 quid discounted with free shipping was a no-brainer compared to other options out there, but had another brand discounted similarly I'd have been comparing between them.

 

This did help Hornby - the additional margins from direct selling make all the difference when net income is so slim - but "at what cost"?  Unknown yet, to me, if the loss of a major retailer like Hattons can be made up by those stronger margins.

 

Good for them though - seemingly on the right track. Less cost of carrying inventory, debt reducing, etc. As the only manufacturer still bothering with "entry level" sets to try and bring new into the hobby I think it's important they are strong enough to support the hobby.

[ruggedpeak]

25 minutes ago, Nova Scotian said:

This was certainly the case for me.

 

I ordered the 6w PBA Sentinel - I had issues with my chosen shop online and didn't want to miss out, so made my first ever Hornby shop online purchase. My next purchase returned to my preferred retailers. I'm not a brand acquisition, but was looking for a "deal" on a decent shunting loco. 55 quid discounted with free shipping was a no-brainer compared to other options out there, but had another brand discounted similarly I'd have been comparing between them.

 

This did help Hornby - the additional margins from direct selling make all the difference when net income is so slim - but "at what cost"?  Unknown yet, to me, if the loss of a major retailer like Hattons can be made up by those stronger margins.

 

Good for them though - seemingly on the right track. Less cost of carrying inventory, debt reducing, etc. As the only manufacturer still bothering with "entry level" sets to try and bring new into the hobby I think it's important they are strong enough to support the hobby.

With so much stock and debt, and associated costs they need stuff out of the door. The cost of holding that Sentinel and the associated interest payments will likely exceed any margin, even at RRP. Reducing stock and debt is key given, if the margin is nil or even a bit negative that does not mean it is wrong for the business. It continuing to sit in the warehouse will erode any future higher margin, if it has not already become a liability.

 

Critically the discount enticed you (and me!) to register and spend with them, and expand their direct customer base. Assuming you have not opted out of all their marketing comms or deleted your account you are now on their system and if their CRM works they will entice you back. I buy in a similar same way as you I think, and if their CRM is up to speed they will segment the regular full price buyers from the bargain hunters etc and message us accordingly i.e. for me focus on sending stuff about sales and discounts. Telling me about new full price stuff will generate little or no sales, those things I generally buy from retailers at the standard discount. Telling me I can buy discounted product with points, free postage and a free gift, I'm in!!!!😊

[APOLLO]

You got to ac-cent-tchu-ate the positive
E-lim-i-nate the negative
And latch on to the affirmative
Don't mess with Mr. In-between
You got to spread joy up to the maximum
Bring gloom down to the minimum
And have faith, or pandemonium
Liable to walk upon the scene

 

Brit15

[Legend]

Sales up, margin up , inventory down . Sounds pretty good to me . 

[Fireline]

6 hours ago, micklner said:

Smoke and Mirrors and Sweeping Statements commonly known as Bull Ship !! .

 

 

And your evidence for making something, which itself is a sweeping statement, is....?

[Johan DC]

8 hours ago, JSpencer said:

The "More than 50% of all Black Friday transactions came from first time purchasers, demonstrating acquisition of new customers to our brands in this key promotional period." is an interesting statement and I wonder how this was calculated.

Easy: count the customers who buy one of the 'often bought together' suggestions! 

No idea what the algoritme is behind that, but at least they got the scale right with me 

[ruggedpeak]

Hornby had a Black Friday sale on their website. To buy something with Hornby you have to register on their website.

 

I think it fair to assume that the 50% comes from Hornby counting the number of orders during the period and then counting those who ordered and had registered during that period, or those who had a web account but had not purchased before Black Friday.

[Bishdurham]

Basically a first time buyer is somebody who is not already on the system as a purchaser.  Fairly easy to monitor.  

 

If Hornby sell direct they make more profit than if the sale is through a third party.

 

This is good for Hornby and if it means more are aware of the brand and decide to buy more from other sources good for other retailers as well.

[micklner]

1 hour ago, Fireline said:

 

And your evidence for making something, which itself is a sweeping statement, is....?

Look at all their reports over the years and you will see a common pattern of etc etc  !!!

[spamcan61]

5 hours ago, ruggedpeak said:

With so much stock and debt, and associated costs they need stuff out of the door. The cost of holding that Sentinel and the associated interest payments will likely exceed any margin, even at RRP.

Exactly, the seldom mentioned downside of the manufacturer becoming the retailer is that the manufacturer has to fund the entire production run until it's all sold, rather than spreading that risk over 100 or whatever retailers.

Edited January 18 by spamcan61

[1andrew1]

36 minutes ago, spamcan61 said:

Exactly, the seldom mentioned downside of the manufacturer becoming the retailer is that the manufacturer has to fund the entire production run until it's all sold, rather than spreading that risk over 100 or whatever retailers.

I think that's more an issue for the retailer who becomes a manufacturer (eg Hattons) as they only have one route to market - themselves.

 

In contrast, if Hornby becomes a retailer itself, it shouldn't  lose its other retail routes to market. 

Edited January 18 by 1andrew1

[woodenhead]

46 minutes ago, 1andrew1 said:

I think that's more an issue for the retailer who becomes a manufacturer (eg Hattons) as they only have one route to market - themselves.

 

In contrast, if Hornby becomes a retailer itself, it shouldn't  lose its other retail routes to market. 

Hattons also offered some of its own products as wholesale for other retailers to sell.

 

That was probably the line being crossed when it came to Bachmann.

 

But it was the gap made by Hornby and Bachmann in failing to turn out new models that Hattons hoped to fill.

[The Stationmaster]

On 17/01/2024 at 15:48, ColinB said:

I think you have to be a cautious about the railway figures. Up to Christmas 2023 they seem to have released far more locos than they did in the same period in 2022. Then there was the fact that previous to 2023 there had been two batches of huge price rises, so a lot of people, me included, put orders in to Hornby direct so as to fix the price. For 2024 I have started going back to Retailers as I no longer get the 10% discount from the club and I suspect in the current climate I doubt the prices will rise that much. So yes the outlook looks good but there are a lot of things to consider. 

Of course we don't know the results by brand.   On past information I reckon their railway sales are probably no more than 10-12% of total sales although the percentage is likely to be higher in the immediate pre-Christmas period where trainsets still seem to figure as purchase for some age groups.  Plus in the pre-Christmas period they obviously reduced prices on some low end model railway items which might have had an  impact.

But we should not overlook the fact that we don't know how the different brands are performing and which of them are increasing online sales (in the past the differences between brands in online sales was very noticeable).

 

Clearly the overall results are encouraging with bottom line benefits from the reduction in the size of the inventory - which alas is still huge - and the small improvement in nett debt.   The improvement in margin is also encouraging but also indicates that online purchases are becoming more important at the cost of sales via retailers.  But, perhaps, most encouraging, is the increase from 'new customers' - no doubt online and whatever they might be buying.  

 

Clearly some people are happy with the results as the share price is currently up 2.5p on yesterday.  So some encouraging numbers but don't forget that in terms of sales the period covered is being compared with poor results in the same quarter last year.

 

The most interesting number in their is that their 5% growth compares well with an overal wider market area 1.5% decline in sales.  Apart from Hornby comparing with a previous year's poor performance does it also mean we are seeing a sign, once again, of creative hobbies doing better than many other things in times of dismal economic news?

 

 

[MarkSG]

It's certainly given the media the opportunity to indulge yet again in a choice selection of headlines from The Sub-Editors' Little Book of Railway Analogies.

 

"Hornby growth plans on track after Black Friday boosts sales" - Evening Standard

 

"Hornby shares steam ahead as sales and new customer numbers rise" - This is Money

 

"Hornby back on track as successful Black Friday helps boost sales" - The Mirror

 

At least The Times bucks the trend slightly with "Hornby powers into its second century with increased sales". 

 

 

[The Stationmaster]

20 hours ago, MarkSG said:

It's certainly given the media the opportunity to indulge yet again in a choice selection of headlines from The Sub-Editors' Little Book of Railway Analogies.

 

"Hornby growth plans on track after Black Friday boosts sales" - Evening Standard

 

"Hornby shares steam ahead as sales and new customer numbers rise" - This is Money

 

"Hornby back on track as successful Black Friday helps boost sales" - The Mirror

 

At least The Times bucks the trend slightly with "Hornby powers into its second century with increased sales". 

 

 

Amusing but of silliness.  And definitely much more positive that the Daily Telegraph recentlyannouncing the death of railway modelling  as a hobby in Britain because of the closure of Hattons (didn't even note that other retailers are available) and the demise of the Warley show.

[ruggedpeak]

Whilst I get that the mainstream media don't understand the hobby, that is part because if a story comes up and they want more info they will trawl the relevant specialist press. The question I would ask (as I don't know the answer) is whether model railways has any meaningful specialist business press reporting on it? Who offers business commentary on what is going on that they can tap into? There was certainly no specialist business sector financial reports from agencies as it is too small and is seen as a small subset of the toy market when I used to have access to business reports.

 

The average journo will be unaware that Hornby is fighting in the train sector against a string of effective new entrants, this is not a dormant or dying market. But since no one actually reports on it, and meaningful market data is scarce, it is little wonder the MSM don't get it right. The model train industry has done well to get in front of punters via TV etc, but business wise it is perceived to be a tiny backwater for a certain demographic. No one seems to be pushing the business angle that is a vibrant and diverse market of X size and worth exploring further.

 

Just a thought.

[ruggedpeak]

Talking of journo's this month's BRM has an interiew with the new Hornby Head of Brand, Maryn Weaver. Sounds like a more coherent product range and not getting in a tizz over the competition are on the cards for the future.

[RAF96]

15 hours ago, ruggedpeak said:

Talking of journo's this month's BRM has an interiew with the new Hornby Head of Brand, Maryn Weaver. Sounds like a more coherent product range and not getting in a tizz over the competition are on the cards for the future.

Martyn is ex-Scalextric so no stranger to Hornby Towers and its politics.

Edited January 21 by RAF96