Record sales but the profits melting away at Thorntons

Revenues increased by 1.7 per cent to £218.3m in the year to June 25 after strong sales through supermarkets and other commercial channels offset an 8.2 per cent drop in sales via its own stores, franchisees and the internet.

Pre-tax profits before exceptional items dropped to £4.3m from £6.9m, while £5.4m of one-off items, including the lower value of assets, left it nursing bottom-line losses of £1.1m.

The performance highlights the pressure on the chain’s turnaround plan, which will see it close up to 180 stores over the next three years as it grows sales through the internet and other retailers.

The company has announced that it will close the stores as their leases expire over the coming years as part of its cost cutting plans.

The closure of the stores, alongside the outsourcing of its distribution and warehousing function over the next six years, will aim to lead to “the creation of a profitable and sustainable Own Store channel”, the company revealed.

While it plans to close these stores, the company has announced that it plans to open franchise businesses in many of the same locations instead.

Thorntons also revealed that its branded products grew to 7.7 per cent of market share, an increase of 0.3 per cent on last year.

It is also working to revitalise the brand, including by creating a ‘theatre of the senses’ in its stores, and will look to rely less on seasonal events.

However, Thorntons expects its turnaround will get little help from current trading conditions.

Chairman John von Spreckelsen said: “We anticipate that the weakness in footfall and consumer sentiment experienced through our own store and franchise channels during the first half of 2011 will continue at least into 2012.

“We are, however, looking forward to another strong year of growth in our commercial channel.”

Commercial sales jumped 26 per cent to £78.8m in the full year as Thorntons continued to develop distribution deals with supermarkets, while it took its share of the chocolate box market to around 34 per cent.

The one-off items also relate to leases on stores already closed and the oursourcing of warehousing and distribution facilities.

Investec Securities said the underlying profits figure of £4.3m, which excludes the exceptional items, was towards the top end of its own forecasts of between £3m and £4.5m.

Analyst David Jeary added: “Much now depends on the successful implementation of the strategic review.

“Forward orders in commercial for Christmas are encouraging, but the consumer backdrop remains weak, hence our unchanged forecasts at this stage.”

Jonathan Hart, Thorntons’ chief executive, said: “In the year that marks the centenary of Thorntons, I am pleased to report record overall sales, despite the challenging retail environment.

“This highlights the strength of our multi-channel strategy, as well as that of the Thorntons brand, with sales of branded products rising by 2.2 per cent.

“Commercial sales have grown by an impressive 25.9 per cent over the full year and we are encouraged by our forward orders for Christmas 2011.

“As announced at the time of our strategic review, our goal over the next three years is to rebalance the business and to create a profitable and sustainable retail estate.

“ While we expect to see the weakness in High Street footfall and consumer spending to continue through 2012, we are confident that this strategy is right for the company,” Mr Hart added.

Taking direct action

ThorntonS has revealed that its IT and other outsourcing activities should help deliver an annual cost saving of £2m.

It signed a six-year deal with HP Enterprise Services for IT services in September last year. HP provides end-to-end management and support for IT, networking and applications for the company under the multi-million pound deal.

“Our Thorntons Direct channel will continue to grow in line with the online gifting market.

“We will invest further in our website and in new customer relationship management systems as we start to align the direct consumer element of this channel with our Own Stores channel,” the company said.