Thorntons warns it may have to close 227 stores
Thursday 17 February 2011
Thorntons, the chocolatier, has issued a profits warning for the third time in 10 months and indicated that it may have to close more than 200 stores over the next four years.
The 100-year-old retailer blamed the heavy snow before Christmas for up to £4m in lost sales and "supply chain disruption", and warned that trading across its shops had been "weaker than anticipated" since its last update on 13 January.
As a result Thorntons expects its pre-tax profits for the year to the end of June to be around £6.1m, the same as for last year, but below consensus City forecasts of £6.8m.
The company's total revenues rose by 4.8 per cent to £133.5m for the 28 weeks to 8 January, following a strong performance from its commercial division, which sells chocolate to other retailers, including the big four supermarkets.
In a blow for the high street, however, Thorntons raised the prospect of offloading as many as 227 of its 379 company-owned shops by 2015, as it looks to reshape its estate.
Mark Robson, Thorntons' finance director, said: "All we are saying is that over the next four years, 60 per cent of our leases come up for renewal. We are not shutting all those stores – let's be clear about that." He added that the chocolatier would review each store as it comes up for renewal.
His comments will make grim reading for retail landlords, who are still reeling from large-scale property disposals by the entertainment group HMV and the sports equipment chain JJB. This week, the Local Data Company found that town centre vacancy rates surged to 14.5 per cent last year from 12 per cent in 2009. This means that more than 26,000 units now stand empty in the 794 towns surveyed by the retail data firm.
On the shop floor, Thorntons blamed the adverse weather before Christmas for a sales shortfall of up to £3.5m over the 28 weeks to 8 January, while the heavy snowfall saddled it with "supply chain disruption" costs of £500,000. Retailers from the maternity specialist Mothercare to HMV have blamed the dire weather for profit warnings in January. Sales at Thorntons' own stores fell by 5.9 per cent to £74.1m, while on a like-for-like basis they were down by 5.2 per cent. Its 229 shops run by franchisees suffered a 4.9 per cent fall in sales to £7.8m, which the chocolatier again blamed on the "adverse weather".
The group's gross margins – the difference between the price at which a retailer buys stock and the price it sells it for – tumbled by 4.1 per cent. Thorntons attributed this fall to higher levels of discounting and promotional costs incurred both in its own-stores and in commercial businesses.
Its gross margins were also hit by the retailer's commercial division, as it made a greater proportion of total sales but at wholesale prices. Sales at the commercial arm, which accounts for about a third of group sales, soared by 30.6 per cent to £45.2m over the 28 weeks. Revenues were boosted by Thorntons selling more lines, such as its Melts and seasonal products, to wholesale customers.
The retailer's online sales rose by 8.5 per cent to £6.4m over the period, despite the weather restricting sales to certain parts of the country. Pre-tax profits at Thorntons fell by 8.5 per cent to £8.3m over the 28 weeks.
On the outlook for consumers, Mr Robson said: "We view the UK retail environment as challenging and consumers are facing uncertain times." Thorntons maintained its interim dividend at 1.95p. Its shares fell 7p to 92p.
Whatever the weather
* If Thorntons blaming the weather for tumbling retail sales over the past 28 weeks sounded familiar yesterday, that is because it has form in lamenting its own unique meteorological curse. Two years ago, the chocolatier blamed the "hot weather" in June for a slump in sales, while in 2003 it had complained that a sweltering summer and mild autumn had melted its profits.
While Thorntons is not alone among retailers in griping about the weather, its moans about the great British climate are starting to generate a lot of jocularity on message boards below news articles. Maybe it should remember the words of one of the UK's most famous retailers, Sir Stuart Rose, the former boss of Marks & Spencer, who once quipped "weather is for wimps".
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