Character Stock Down On FY25 Loss, Dividend Cut; Sees Higher Adj. Profit, Flat Revenues In FY26

Character Group reported a FY2025 pre-tax loss of £1.82m (loss per share 6.74p) versus a £5.68m profit a year earlier as revenue fell to £100.47m from £123.42m; underlying pre-tax profit dropped to £1.22m (EPS 5.59p) and underlying EBITDA to £3.9m, with management citing US import tariffs that severely hit second-half performance. The board cut the full-year dividend to 6.0p from 19.0p (final 3.0p) and the shares fell about 11% to 235.10p, but expects underlying profit to more than double in fiscal 2026 even as overall turnover is likely to remain flat; US sales are expected to decline further but should be offset by growth in other territories and new product launches aimed at improving second-half results.

Analysis

Character Group reported a FY2025 statutory loss before tax of £1.82m (loss per share 6.74p) versus a £5.68m profit a year earlier, while revenue fell to £100.47m from £123.42m; underlying pre-tax profit declined to £1.22m (underlying EPS 5.59p) and underlying EBITDA dropped to £3.9m from £10.1m. The shares reacted negatively, falling about 11% to 235.10p after management confirmed a reduced total dividend of 6.0p (final 3.0p) versus 19.0p last year.

Management attributes the deterioration chiefly to newly imposed US import tariffs that “severely impacted” H2; US-derived revenue is expected to fall further while other territories should partially offset the decline. Sales momentum into Christmas 2025 was weaker than in 2024 and the Board warns of a challenging H1 in fiscal 2026, tempering confidence in near-term cash flow and inventory turns.

Despite the near-term headwinds, the Board forecasts underlying profit to more than double in fiscal 2026 even as overall turnover is likely to remain flat, citing planned new product ranges and enhancements to support a stronger H2. The outlook therefore hinges on execution of product launches, territorial rebalancing of sales, and recovery in margins once tariff effects and seasonality are absorbed, leaving material execution and timing risk for investors.

Key Decisions for Investors

• Delay initiating a material new long position until H1 trading updates show sequential revenue improvement and signs that US revenue declines are being offset by other territories
• If adding exposure, size positions conservatively and require near-term proof points: improving H2 sales momentum, margin expansion or EBITDA recovery consistent with management's guidance
• Do not buy for income following the dividend cut from 19.0p to 6.0p; reassess dividend recovery only after management confirms sustainable cash flow and a return-to-dividend policy
• Consider short-term hedges or profit-taking on existing positions given execution risk around product launches and tariff impacts, and monitor record/payment dates (record Jan 16, payment Jan 30) for near-term liquidity flows