Games Workshop and Hornby: a tale of two hobbies

Games Workshop and Hornby both released trading updates today, showcasing solid performances over the holiday season, but warning of certain economic headwinds.

Games Workshop

Games Workshop (GAW Follow | GAW), manufacturer of miniature wargames, best known for its Warhammer series, reported core sales for the past 6 months to 27 November exceeding £200m for the first time, rising 11% year-on-year. At the same time, pretax profit dropped 5.2% to £83.6m.

The miniature wargaming company also raised its dividend to 130p/share up from 65p a year ago, bringing the total dividend for FY23 to 295p/share.

GAW stock has risen more than 10x since 2017, although it is down some 26% from its most recent peak in September 2021. Still, shares in the company are now up 53% since a September 2022 bottom with bulls aiming to reclaim the nearly 12,000p high of 2021. With momentum on its side and a recently signed deal with Amazon to create a series based on Warhammer, Games Workshop will be looking to build on its 2022 recovery in 2023. 119 newly opened trade outlets in the US should help that goal, as the company reported flat sales in North America during the period year-on-year.

Games Workshop also said it is committed to exploiting its IP outside its core business globally through licensing agreements. Licensing net cash inflows in the period were £13.4m, more than double 2021's £6.2m. Licensing is an area of GAW's business that has investors particularly excited.

Still, Games Workshop warned of external headwinds impacting the delivery of its commercial plan, namely lingering Covid-19 effects in China and Japan, the effects of Brexit continuing to add hiring costs in the UK, and £2m lost in net revenue from sales in Russia as a result of the war in Ukraine. GAW shares were down 4.6% in afternoon trading.

Hornby

Hornby (HRN Follow | HRN), a manufacturer of models and collectibles, including Scalextric racing sets, had a worse time on the market today. Its shares dropped 17.24% as the company expressed uncertainty over its full-year outlook due to factors related to the cost of living crisis in the UK. Hornby forecast a "modest underlying loss before tax" to year end March 2022.

On the positive side, sales during the holiday period were ahead of the same period last year, and cumulative group sales for the FY to date are ahead of last year by 6%. Direct-to-consumer sales were also up 44% compared to last year. Hornby explained the improvement was due to better availability of stock, price increases, and investment in e-commerce platforms.

Hornby is also launching a new control system for trains using Bluetooth to connect to phones or tablets, meant to replace traditional systems in the market. The company said its order book remained "strong" ahead of 2023 product range releases.

View from Vox

With the broader retail sector reporting full-year results this month, some may ponder the chances of the model/miniatures sub-sector surviving long-term competition from higher-tech hobby alternatives. Games Workshop's licensing strategy aims to merge its IP with newer digital forms of entertainment, but will Hornby's model railways, airfix kits, and Scalextric survive the 2020s and beyond? Considering 80s and 90s nostalgia is an industry onto itself now, it is not an easy answer to give, and we would not be surprised if models continues to enjoy popularity for years to come.

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