SHARES in HIT Entertainment plunged by almost a third yesterday after it emerged that Wal-Mart, the world’s largest retailer, was to cut the amount of shelf space it devoted to the children’s television company’s products.

HIT, which owns Bob the Builder, Thomas the Tank Engine and Angelina Ballerina, said that a major US retail partner planned a significant reduction in the shelf space it devotes to children’s entertainment products.

Traders dumped the stock on the admission, with the shares plunging 83p to 210p — a drop of 28 per cent.

The group refused to be drawn on the identity of the retailer, but it is understood to be Wal-Mart.

HIT said that it expected its pre-tax profits for the year to be 15 to 20 per cent below market expectations of £41 million. It forecast a figure between £33 million and £38 million.

The company heard the bad news from the retailer in a routine meeting on Wednesday.

HIT shares have surged recently on expectations that the company would be able to launch a digital television pre-school channel in the US with the cable group Comcast and other partners.

Wal-Mart believes that the space it devotes to children’s videos and DVDs could be more profitably devoted to other products.

As HIT’s products are not perishable, they can be sent for sale in other markets. The company thought, however, that it should take a provision because of the uncertainty about the ultimate level of sales.

The blow came at a tricky time for HIT, just six weeks before its year end, which falls at the end of next month.

Rob Lawes, the HIT chief executive, said that despite “this disappointing development” HIT remained a highly profitable company. It had “one of the strongest portfolios of young children’s properties and a strong home entertainment release schedule in the months ahead”, he said.

Entertainment groups such as Warner and Disney are also likely to be hit by the Wal-Mart decision, but home entertainment represents a larger proportion of HIT’s business than of the majors’.

Mr Lawes insisted that HIT remained optimistic and was pleased at the progress being made toward establishing the digital channel. Television exposure drives sales of videos and DVDs, as well as toys and other merchandise.

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