Thorntons

HOLD

13/09/2011 Ben Jaglom

Chocolatier Thorntons (THT) has reported a 38% slip in profits amid a challenging environment for the British high street.

The fully listed group declared pre-tax profits of £4.3m (2010: £6.9m) on sales of £218.3m (2010: £214.6m) for the year to 25 June. Net debt fell by £1.5m to £24.5m, while a final dividend of 0.25p was declared, a substantial fall against last year's dividend of 4.1p a share.

The results came in a tough year for the group. This June, Thorntons reported that it would be closing up to 180 of its own-brand shops as part of a move to shift the business towards its online and franchise operations. Over the period sales in its own stores fell by 8.9% to £118.3m while Thorntons Direct – its online division – grew sales by 4.3% to £9.6m.

In an interview with Growth Company Investor, Thorntons chief executive Jonathan Hart remarked that the results came 'amid the toughest spending environment the company has ever experienced'. Regarding the store closures, he enthused that Thorntons 'was planning to create a profitable and balanced organisation'. Concerning the paring of the dividend, he said that 'we recognise its importance but we need it to be at a sustainable level'.

Looking forward, he declared that its 'positioning in the marketplace as mass premium has shown resilience', adding that increased 'commercial growth' through its franchise and online channels was a key target.

Analysts at house broker Investec are forecasting pre-tax profits of £4.5m (EPS:4.7p) on sales of £228.4m for the year to June 2012. In 2013, profits of £6.5m (EPS: 6.9p) on revenues of £228.3m are forecast.

It has been a torrid year for Thorntons, which has sufferred immensely from both a decline in consumer spending and competition from high street rivals such as Hotel Chocolat, which aim themselves at the premium end of the chocolate market. As a result, its future looks set to be in becoming an online business such as Interflora. Having lost more than half of their value since January, at the current price the shares look fairly valued. Hold.