On the money: Thorntons upbeat despite profit plunge
Thorntons would keep stores in "sustainable" locations, said Hart
Thorntons management today (15 February) said that the UK chocolate group is on the right track to reverse declining profits, despite the company booking a 92% fall in first-half pre-tax earnings.
Updating the market on the group's performance during the six months to 7 January, Thorntons revealed that pre-tax profits after exceptional items fell to GBP618,000 (US$971,245), compared with GBP8.3m in the first half of last year. One-off charges totalled GBP2.4m during the period, the company emphasised.
Commenting on the results during a conference call, chief executive Jonathan Hart admitted that poor Christmas trading, which was "not in-line with our expectations", had also had a negative impact on the company's profitability during the period. In addition, higher supermarket sales of more deeply discounted goods hit margins. The result was a significant drop in underlying profit, which fell 61% to GBP3.1m.
Thorntons, which sells chocolates through company-owned stores and other commercial channels, has previously signalled its intention to increase its focus on higher-volume, lower-value sales through supermarkets. As part of this move, the company intends to dramatically cut its store network, which it will trim by around 180 outlets over the next three years.
Defending the move to a lower-value, higher-volume business model – and the suggestion that this could devalue the Thorntons brand – Hart insisted that the meteoric rise in sales made through UK supermarkets left the chocolatier with little option other than to follow this route.
"What we've seen over the past dozen years is the significant growth in grocers in Britain. Consumers have voted with their feet... and for us to be a strong brand in that environment and not participate, we would clearly miss out," Hart insisted.
Thorntons does however intend to retain a retail estate comprising of between 180 and 200 stores in "sustainable" locations. This, Hart said, will provide the brand with an important "shop window" and reflects his "great confidence" in the UK high street.
While Thorntons will look to volumes over pricing to drive sales gains, management insisted that this need not be at the expense of margins.
According to finance director Mark Robson, in order to keep a lid on margins in the remainder of the year, the group is continually reviewing its products, engineering, formulation and procurement. As a consequence, Robson said he anticipates future margin pressure to ease.
In particular, Robson noted that the chocolate manufacturer is "starting to move into a more benign cost environment". However, the benefits of falling ingredients costs will take some time to feed through to the bottom line due to forward purchasing and hedging agreements, he added.
Thorntons is also working on adjusting its product mix sold through supermarket channels, management revealed. The company is "working with" its retail customers to improve the availability and visibility of its all-year-round lines, which have a higher selling price and are not so deeply discounted.
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