Celebration cake specialist Cake Box has warned that its full-year profitability is expected to be “significantly below” current market forecasts.
The company said the lower expectations were due to the “worsening outlook” and increasing cost of living pressures on the consumer.
In Cake Box’s full-year results, published on 27 June 2022, the directors noted that they remained mindful of an “increasingly challenging” environment despite “robust” trading at that time.
Since then, however, the company said the trading environment has become significantly more challenging. Inflationary cost pressures across the group have increased above levels previously anticipated and Cake Box does not expect them to ease before the end of the financial year. The company said it has passed some of the cost increases onto franchises with a recent price increase but warned the full-year gross margin will be impacted regardless.
In addition, Cake Box has seen weaker than anticipated sales at the franchise level during July and August, which has resulted in franchisee like-for-like sales declining 2.8% in the first half to date. The board believes the summer performance of the business was exacerbated by the recent heatwave impacting store footfall.
The company said it 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. According to the board, the balance sheet is strong, with cash at close of business on 30 August 2022 of £6.7m, prior to paying a proposed dividend of £2m in September.
The company said it will continue to increase its geographic presence, with a “strong pipeline” of potential new franchisees and deposits for sites. Looking ahead, the board said it is confident in Cake Box’s future growth prospects underpinned by increased investment in “professionalising” the group’s functions and the pipeline of new store openings across the country.