Good morning! It's Paul here.


Quarto Inc (LON:QRT)

Share price: 176.6p (down 25.6% today)
No. shares: 19.7m
Market cap: £34.8m

Trading update (profit warning) - bad luck to shareholders here. This company is mainly an illustrated book publisher.

It says today that guidance given to the market has turned out to be too high. However, this explanation simply doesn't make sense to me;

Prior to entering the closed period, the Group has been reviewing guidance as given to the market. This process has revealed that the guidance currently in the market uses a publishing-only baseline for 2016 that does not reflect the benefit of $2.1m relating to the reduction in the amortisation of capitalised pre-publication costs - as explained in the FY2016 Results announcement on 31 March 2017 and in the Group's Annual Report. As a result, the baseline guidance for 2017 and beyond has been set too high.


Surely if the company didn't include the benefit of a $2.1m lower amortisation charge in its guidance, then the profit guidance would be too low, not too high? So the above paragraph doesn't make sense to me at all. Maybe I'm just being slow? (I am only half way through my first coffee of the day).

EDIT: a note from Liberum today explains it much better. They say that the baseline for forecasts was set too high, due to a one-off benefit in the prior year baseline figures.


Whatever the explanation given, the upshot is that profit guidance in the market is currently too high. So it's a profit warning. QRT joins RBG in a category of companies whose finance departments don't seem to be very good at forecasting.

As well as this apparent forecasting error, underlying trading conditions seem to be soft, causing under-performance in the year to date;

The Interim results will reflect the ongoing soft retail environment in the Group's domestic markets, resulting in a lower-than expected trading performance in the year to date - as well as a more pronounced second-half weighting, natural in a pure-play publishing business.

The Group expects its strong publishing programme, combined with the continuing resilience of its publishing portfolio and enduring backlist, to perform significantly better in the second half.


Investors should bear in mind that QRT normally has an extreme seasonal weighting

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