Discounts to lure shoppers see Thorntons’ profits melt

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STRUGGLING chocolate retailer Thorntons reported a halving in profits yesterday as it was forced to discount heavily to lure shoppers into its stores.

The group’s own-store sales fell 5.5 per cent on a like-for-like basis in the 28 weeks to January 7 as customers opted to buy chocolate on promotion.

At the same time the company’s margins were hit by rising raw material costs.

Thorntons waived its first-half dividend following the fall in profits.

The company is closing at least 120 of its stores over the next three years.

Merchant Securities analyst Amisha Chohan said: ”The strategy to reduce their own stores and grow via franchises has not been successful. The group is struggling to entice franchises despite reducing their fees.”

Underlying profits fell 61 per cent to £3.1m. After nearly £2.5m of charges to cover loss-making stores, Thorntons reported bottom-line profits of £618,000 for the six-month period.

Chief executive Jonathan Hart insisted that Thorntons’ strategy is the right one after he unveiled plans last year to close stores and drive more business through supermarkets and commercial channels.

“These results and the economic climate only reaffirm the need for change,” he said.

The company ended the period with 344 stores after closing 20 outlets as their leases expired.

It envisages an estate of between 180 and 200 stores in “sustainable” retail locations, with store refurbishments based on a successful trial format.

“Thorntons has a strong brand equity with a widespread consumer appeal,” said Mr Hart.

“While our sales emphasis will develop through our commercial channel, our reduced retail estate will remain an important shop window for the brand.”

Overall store sales fell 7.9 per cent to £68.3m in the half year and revenues from franchises were down 13.4 per cent to £6.7m.

The company’s online business reported a 4.6 per cent rise in sales to £6.7m.

The group will launch a new website after Easter.

Sales through commercial channels rose 6.9 per cent to £48.3m, lower than expected.

Thorntons said trading since the end of the half-year has been in line with expectations but it has already warned it will only break even this year.

The company’s lower profit was expected as it issued a profit warning in December and flagged weak Christmas sales last month.