Thorntons bullish after good Christmas

The festive season is the most important time of year for Thorntons, and a poor Christmas performance (like the one in 2002) can leave a big hole in the company's financial results for the year.

Thankfully, though, Christmas 2003 turned out to be a good one for the British group, with like-for-like sales up 4.6 per cent in the seven weeks to 27 December. The good performance contributed to a 4.4 per cent increase in total group sales for the first half, which reached £109.3 million.

The only disappointing performance came from margins, which did not quite meet the company's own high expectations during the period.

Own shop sales increased by 2.4 per cent to £85.8 million on an estate virtually unchanged during the half at 388; the number of Thorntons cafes rose by one to 27. Own shop like-for-like sales were 2.5 per cent for the first half.

Franchise sales growth was a more modest 1.3 per cent to £7.8 million, despite 10 more outlets than in the previous year, and this was attributed to destocking and some short-term summer re-merchandising into gifts and cards to offset the fact that chocolate sales were hit by the heatwave. In addition, most franchised stores do not sell ice cream, a product which sold well during the summer in Thorntons' own stores.

The strategy to widen distribution of Thorntons' products into other retailers continued to be highly successful during the half. Private label sales rose by 6.0 per cent to £8.8 million and Thorntons branded sales were up 140 per cent, driven by new listings, to £3.6 million.

However, Thorntons Gift Delivery Service sales fell by 2.9 per cent to £3.3 million, a performance which the company called "a disappointment"​ given its previous strong growth. However, Thorntons said it saw great scope to continue growing this business.

The last main revenue stream for Thorntons is royalty income from a licensed range of cakes, puddings, biscuits and other sweet food, and this remained virtually unchanged in the half at £248,000 as a result of the decision to concentrate on certain product categories and discontinue others.

"'I am pleased with the strong performance over Christmas,"​ said Peter Burdon, chief executive. "Whilst I would have wished for our margin to have been stronger, we were left with little surplus stock post Christmas. Progress on new commercial listings has been very good and we now have products on the shelf of every major food retailer. We are developing the range further into this new market with a range of boxed chocolates and Easter eggs."​

He continued: "Whilst the turnaround in sales since the summer is very encouraging, we recognise that creating consistent sales growth is key and this is central to our strategy. In addition, we intend to give further impetus to margin and cost improvement."​

As for the ongoing discussions over the sale of the company, Burdon said simply that discussions were continuing and that shareholders would be kept informed as and when there were any developments.

A number of financial bidders, including Lehman Brothers and Permira, are thought to be interested in buying Thorntons, while a management buy out is also a possibility.

The good trading performance in the first half will do nothing to dent the chances of Thorntons' management holding out for a 200p a share offer - initial offers were thought to be around 180 pence - but it also shows that the management appears to have the right strategy in place to drive growth in the future - in particular the relentless move into the wider retail sector - which could favour an MBO or indeed the status quo​.

In any case, Thorntons is clearly in no rush to sell, and negotiations are likely to continue for some time, at least until the company releases its full interim figures at the end of February.