Gulf starts at Sheikh Adi-2 25/05/2012
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Thorntons struggles on
Despite achieving a very small rise in sales in recent weeks, chocolatier Thorntons (THT) has warned the outlook is bleak as cost conscious consumers reign in their spending.
In the 14 week period to 7 January, sales plodded ahead 0.6 per cent to £83.7 million. Against this the fully listed enjoyed a mixed performance across its business with commercial sales up 16.9 per cent to £29.2 million, but overall retail revenues fell 6.8 per cent to £44.9 million.
Founded in 1911, Thorntons sold a record amount of chocolate in the final quarter, largely thanks to increased brand awareness and strength in its commercial channels. It has suffered margin erosion in a market which has witnessed savage promotional activity, so its little surprise profit forecasts have been heavily scaled back.
As foreshadowed in a trading update late in December, in the year to April a previously hoped for £4.5 million will now be no better than break-even and in 2013 broker Investec has slashed its pre-tax profit expectation from £6.5 million to just £2.2 million - it has also scaled back its share price target from 35p to 15p.
The online business is doing well and Thorntons boasts of a strong Spring range, but the intention is still to rebalance its business by reducing the retail estate which currently stands at 574 stores. Following the trading update this morning, the shares have slumped 17 per cent to a new low of just 11.75p, valuing the retailer at little more than £8 million.
With a raft of challenges ahead, the uncovered dividend yield is the only attraction, and this is by no means certain. We placed a 'reduce' rating on the stock in Growth Company Investor in July at 50.5p - with the price now a fraction of this our advice is to avoid the shares.
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