Thorntons takeover uncertain after sales drop

By Peter Stiff

- Last updated on GMT

Related tags Sales Retailing Thorntons

UK chocolate seller Thorntons' sales have fallen by 6.2 per cent,
jeopardizing a possible takeover of the public company

Company chairman Christopher Burnett blamed the poor retail market for the decline in sales.

Burnett has a particularly vested interest in the performance of Thorntons. In August last year Burnett made a pre-conditional offer proposal regarding a possible take over of the company.

Since then he and his funders, who together call themselves Newco, have been putting together a bid.

However due to the company's poor recent trading performance Newco has said it needs to review the original expected offer of 185p per share, according to a press release by Thorntons.

The overall UK chocolate market is worth in the region of £7 billion but is suffering from somewhat stagnated growth.

Thorntons is different from most chocolate companies in that it manufactures and sells its product through its own network of shops and franchises.

The chocolatier's losses in its own shops contributed heavily to the disappointing results in the first six months of its financial year.

For the period ending 31st of December sales amounted to £112.3 million (€163m), a decline of 6.2 per cent compared the same period in 2004. The six months are normally the company's most lucrative trading period.

Own shop sales were down 6.4 per cent to £80 million. However the company said the sales may have been affected by the decision to reduce the number by eight stores. Like for like sales, taking into account eight less shops, were down 5.3 per cent.

Franchise and Thorntons branded product sales also decreased.

Franchise sales reached £8.3 million a decline of 3.3 per cent. On a like for like basis they decreased 5.3 per cent, with six shops less than the first half of the previous year.

Sales of branded products sold through other retailers were £13.4 million, down 0.7 per cent.

There was an increase in sales to grocery stores, however sales to high street retailers declined due to management's decision to withdraw accounts in this segment.

Private label commercial sales experienced the biggest percentage loss but from a small base. Management said the 19 per cent sales decline to £7.1 million was due to the absence of repeat orders for some seasonal products.

The only bright spot for the company is that sales in its Thorntons Direct gift delivery service increased. Sales increased to £3.5 million, a rise of 3.5 per cent.

However this remains a small division of the business and reclassification of duty free corporate accounts from commercial branded products to the Direct division may have be a factor in the increase.

Company chairman Christopher Burnett said the first half sales decline was disappointing especially as it includes the Christmas period, which accounts for 60 per cent of the sales in the financial first half.

Burnett blamed a poor retail environment for losses. He said the company would boost promotional spending and cut costs in a bid to rebound from the bad sales.

"We have sound promotional plans already in place for every seasonal event in the second half, especially Easter, but believe that trading conditions will remain very challenging,"​ he said.

In October last year Thorntons warned about the poor sales. On 3 January it revealed it had not had a good Christmas.

Speculation as to a takeover has hence been rife, with Burnett re-evaluating his proposal. The UK press has speculated that Iceland-based Baugur may come in with a higher bid.

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