Cake Box warns cost rises and lower sales to drag on profits

Cake Box has warned profits for the year are set to be “significantly below current market expectations” due to surging costs and weaker sales.

Shares in the cream cake retailer dropped by around a third in early trading on Wednesday as a result.

The company said the trading environment has become “significantly more challenging” over the past two months, following a robust start to the current financial year.

In a statement, Cake Box told shareholders: “Inflationary cost pressures across the group have increased above levels previously anticipated and the board does not see these easing before the end of the financial year.

“While the group has passed some of the cost increases onto franchisees with a recent price increase, the full year gross margin will be impacted.”

It comes as the British Retail Consortium (BRC) reported that food inflation jumped to 9.3% in August – the highest rate since 2008.

Cake Box said inflationary pressure on household budgets also had a knock-on effect, with “weaker than anticipated sales at the franchise level during July and August”.

Franchisee like-for-like sales have declined by 2.8% over the first half of the financial year to date.

The retailer said it believes the summer performance was exacerbated by the recent heatwave which 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,” Cake Box added.

It said it was taking actions to protect profitability further, such as introducing implementing price increases in its supply operations.