In another sign of how UK spending habits are being buffeted by the cost of living crisis, consumers have even begun to cut back on birthday celebrations.
It's true that the summer's unusually hot weather has exacerbated the impact, buy even the most resilient businesses are now starting to feel the pain.
Today came news that trading at Cake Box (CBOX) - the UK’s "go to provider" of specialty, fresh cream cakes – has “become significantly more challenging”.
That reflects not only elevated input cost inflation - notably flour, energy, labour and freight - which has compressed gross margins, but also softer like-for-like franchisee sales in the year to date, especially in July & August, of -2.8% against +12% in the 10 months ending March 2022.
Consequently FY 2023 results are now expected to be “significantly below [consensus]”, with Shore Capital forecasting adjusted PBT and EPS of £5.5m and 10.9p, respectively, on revenues of £35.1m. That's against previous expectations of £7.2m and14.3p, and £7.0m and 13.8p last year.
More positively, though, price increases are being implemented and cash levels remain robust at £6.7m (£5.3m net) prior to a £2.0m dividend payment, against £6.6m (£5.2m net) in March 2022. Similarly, I suspect Cake Box might gain UK market share as smaller ‘mom & pop’ rivals suffer more in the austere environment.
And looking towards the longer term, Cake Box sais that it “continues to increase its geographic reach, with a strong pipeline of potential new franchisees and site deposits”.
So putting all this together, I would value the stock on a 12x-14x FY 2023 EV/EBIT multiple. Adding in the estimated FY 2023 net cash balance of £5.0m (against £5.2m last year), that generates an intrinsic worth of between 180p-205p a share (versus the current 127p. Alongside a healthy 5.5p dividend - offering a 4.3% yield - it's time to be patient.