Thorntons blames heatwave for profit meltdown over Easter
Wednesday 04 May 2011
The scorching weather this Easter has caused a meltdown at the chocolate-maker Thorntons, forcing it to warn on profits for a second time in three months.
The Derbyshire-based group, whose history stretches back 100 years, issued a trading update yesterday which revealed the hot weather over the festive period had "significantly impacted our own stores, franchise and Thorntons Direct channels".
Despite stocking up on ice creams, the company was unable to offset the plunging sales of chocolate, after one of the hottest Aprils in the UK on record. This forced the company to cut its profit forecasts for the year in half.
This is not the first time the company has blamed the weather for hitting profits, over Christmas it was hit because temperatures were too cold.
Trading over the Easter period traditionally makes up a third of trading during the quarter and Execution Noble analysts Sanjay Vidyarthi said hot weather "does typically affect chocolate sales". Sales over the crucial week were a fifth lower than a year earlier.
Thorntons said the full-year results, which run to June, could be as low as £3m, half of the £6.1m it had forecast earlier in the year and flat against the results in 2010. Yesterday's news sent the shares tumbling more than 10 per cent yesterday.
The chief executive Jonathan Hart called the quarter "extremely challenging", adding that the weakness in high street footfall was likely to continue. He is due to give a strategy update in the next few months, which will include a review of its stores, but would only say yesterday that the process was "well under way".
Sales of chocolate in its own 369 stores was down 12.6 per cent during the third financial quarter over a year earlier. Mr Vidyarthi said the Easter heatwave was not the only problem: "The competitive environment and structural shift away from the high street were also factors, given that commercial sales to supermarkets were up 25.1 per cent."
Clive Black, an analyst at Shore Capital, said the problem was not to be found in rising temperatures, but in "households counting their pennies in tough times and chocolate has become much more expensive".
Franchise sales at the group fell by just over a fifth, while its Thorntons Direct online arm was down 7.9 per cent, following the loss of a significant corporate customer. This comes as the wider retail market reported improved sales in April, continuing its recovery from an eight-month low in February.
The Confederation of British Industry's latest distributive trades survey showed the balance of retailers reporting better sales over a year earlier hit a four-month high of 21 per cent, up from 15 per cent in March.
The rise was led by the grocers and clothing retailers, who likely benefited from the better weather, according to IHS Global Insight economist Howard Archer.
However, sales of durable household goods, hardware and DIY fell once again, although not as strongly as in March. Mr Archer said: "This clearly reflects the weakness of housing market activity as well as consumers' reluctance to splash out on big-ticket items."
Yet a balance of minus 23 per cent of retailers said that sales had been poor for this time of year. "The CBI survey overall does little to dilute the underlying impression that consumers are becoming less willing and able to spend in the face of serious headwinds," Mr Archer added.
Thorntons' weather woes
The heat over Easter may have been welcomed by punters all over the UK but it left chocolate egg on the face of executives at Thorntons. Yesterday's profit-warning was not the first time the company has blamed the weather for sickly rather than sweet sales figures.
February 2011: too cold
Earlier this year, Thorntons blamed "adverse weather conditions over the Christmas trading period" for hitting sales. It said the snow had prevented delivery lorries reaching its stores, and consequently sales had plunged by £3.5m.
July 2010: too hot
The chocolate group revealed sales declines and job cuts last summer, saying the hot weather had hit trading.
May 2010: too severe
The group warned on profits saying "unusually severe weather conditions" and competition from supermarkets had hit sales over Easter. The announcement sent shares down more than 10 per cent.
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