Home shopping group Flying Brands has issued a profit warning after disastrous disruption of Christmas trading as a result of the snow.
The retailer, which sells flowers, gifts and gardening goods, also flagged the danger of a covenant breach and cautioned that it faces step cost inflation this year.
Flying Brands said: “The extreme weather conditions in December coincided with the dispatch of some of our most important catalogue mailings of the period.
“Fulfilment of our Christmas orders was severely disrupted by the worst of the severe weather conditions. In addition our products, being mainly perishable goods and particularly our highly seasonal Christmas flowers, suffered more than other products from delays in delivery, with the result that our level of refunds and replacements was six times higher than the levels of previous years and for which we had budgeted.”
Because seasonal performance failed to meet targets, full-year profits will be “materially below market expectations”.
The retailer said it had brought forward repayment of part of its debt and explained: “The reduction in profits for our final quarter means that we may breach one of our banking covenants when these come to be tested upon production of our year-end accounts.
“Accordingly, we have decided to bring forward the repayment of part of our debt in order to give us more headroom going forward. Our bank has agreed to waive the breach of covenant should it in fact occur and to our revised repayment schedule.”
Flying Brands is increasingly focusing on its web business because of rising mail order costs, and is to increase its stake in web marketing and development business Dealtastic.
The retailer said: “We expect significant cost inflation in our businesses in 2011, particularly in the areas of paper prices and postage but we continue to believe that our value-for-money products make us well placed to do well at a time of pressure on consumers’ disposable income.”
In the final quarter of 2010, Flying Brands achieved sales of £6.4m compared to £5.7m in the comparable previous period.
Like-for-like, sales fell from £5.7m to £5m.