• Thorntons H1 pre-tax profit falls 92%
  • Dividend suspended
  • Pushing ahead with store closures

UK chocolate maker and retailer Thorntons has scrapped its half-year dividend after poor Christmas trading and charges related to loss-making stores hit first-half profits.

In the six months to 7 January, Thorntons witnessed a 61% decline in underlying profits, which dropped to GBP3.1m (US$4.9m) the company revealed today (15 February). Including exceptional items of GBP2.4m, mainly related to “onerous leases” on loss-making stores, pre-tax profits plunged to GBP618,000, compared with GBP8.3m in the first half of last year.

Like-for-like sales at the group-owned stores dropped 5.5% in the half, or 7.9% in total. The company added that margins were also hit as customers opted for its more deeply-promoted chocolate products sold through supermarkets and other retail outlets. Nevertheless, the discounting strategy meant that Thornton's was able to increase its market share of UK chocolate sales, which rose from 7.1% to 7.7% in Boxed and Seasonal chocolate.

According to Conlumino retail analyst Neil Saunders, the conflict between the divergent strategies pursued by Thorntons' two routes-to-market means Thorntons is "a company at war with itself".

"On the one hand its commercial arm – which supplies supermarkets with chocolates – is pursuing a low value, high volume model which depletes margins but helps to secure market share growth. On the other hand its retail arm is attempting to improve the customer and store based experience in an effort to secure a slice of the premium chocolate market. The two strategies do not make for good bedfellows," Saunders observed.

In light of this, Saunders said that the company's plan to axe up to 180 stores over the next three years and drive more business through supermarkets and commercial channels was "sensible".

During the six months, Thorntons closed 20 outlets as their leases expired. In its release this morning, the company reiterated that after additional closures, it envisions a retail estate comprising of between 180 and 200 stores in "sustainable" locations.

Commenting on the results, chief executive Jonathan Hart insisted that the wave of store closures was taking Thorntons in the right direction. "These results and the economic climate only reaffirm the need for change," he said.

Nevertheless, Hart added that the retail arm of the business would remain important to the company's strategy.

"Thorntons has a strong brand equity with a widespread consumer appeal. While our sales emphasis will develop through our commercial channel, our reduced retail estate will remain an important shop window for the brand," he said.