Cake giant Inter Link had its first major setback last week as it issued a surprise profit warning, blaming unsuccessful promotional activity in April.
Inter Link said April is traditionally one of its busiest trading periods, but that significant promotional activity had been unsuccessful. Like-for-like sales for the year to May 6, 2006 will be up by around 8% at £130m – £10m less than forecast, a fall blamed by analysts on the recovery of Manor Bakeries’ Mr Kipling brand.
David Lang from Investec commented that Inter Link “hit an air pocket in April”, after sales weakened in February and March. Private-label had been squeezed by a resurgence of Manor Bakeries’ Mr Kipling brand over the period, with strong offers such as ‘two for £1.80’ on cake slices. He said: “Mr Kipling’s performance had been quite disastrous, but it is recovering now. It has taken a lot of costs out. It has reduced advertising and has switched to promoting more. It is giving much better brand leadership than before.”
Mr Kipling is now breaking even on annual sales of around £200m, he calculated, and Inter Link, which has “had a bit of a free ride against Mr Kipling”, has suffered, he suggested.
However, Inter Link is still on track for strong growth, with overall sales expected to be up 34% and year-on-year pre-tax profits of “not less than 25%”.
Inter Link indicated it will look at expanding production in its Polish factory, where costs are lower than in the UK. And it is continuing to seek “attractive acquisition opportunities”.