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(Sharecast News) - Cake Box shares tumbled on Wednesday after the specialist cream cakes retailer warned on profits.
The company said that since its update in late June, the trading environment has become significantly more challenging. Inflationary cost pressures across the group have increased more than expected and this is not likely to ease before the end of the financial year.
Cake Box said that while it has passed some of the cost increases to franchisees, the full-year gross margin will be impacted.
In addition, sales at the franchise level in July and August were weaker than expected, with franchisee like-for-like sales down 2.8% in the first half to date.
Cake Box said the summer performance has likely been exacerbated by the recent heatwave, which has impacted store footfall.
"Accordingly, due to the worsening outlook and increasing cost of living pressures on the consumer, the group now expects full year profitability to be significantly below current market forecasts," it said. "The group is taking proactive action to mitigate the impact of increased input and administrative costs and to protect levels of profitability, including implementing supply price increases."
At 0805 BST, the shares were down 40% at 106p.
House broker Shore Capital said: "With FY23 profitability expected to be 'significantly' below market expectations, we now forecast FY23 CPTP of £5.5m (previously £7.2m), cautiously taking FY24 to £5.8m (from £8.0m).
"On the revised forecast Cake Box trades on an FY23 PER of 16.4x, and an EV/EBITDA multiple of 10.3x, we continue to forecast net cash and a dividend yield of 3.1%."
