In a statement covering the 14 weeks to October 4, Thorntons boss Jonathan Hart said “We anticipated that sales for this quarter would be below last year as a result of the increasingly fluctuating order patterns in our UK commercial channel.
“These fluctuations will become more significant, within the context of the company's performance, as we continue to grow our FMCG [fast-moving consumer goods] business making quarterly comparisons less meaningful.”
Overall annual performance
But such variances do not necessarily affect overall annual performance, Hart added.
A 10.9% fall in total retail sales reflected mainly an 8% space reduction arising from planned closures. Own store like-for-like sales were down 3.7%, due to the impact of weak high street footfall and the hot September weather.
Franchise sales fell by 19.1% for the same reasons plus the timing of orders. Direct sales were up 3.2%.
FMCG sales fell by 12.8% while international growth rose from a small base by 20.8%. This reflected growth both in existing markets and new US orders.
City analyst N+1 Singer agreed that differences in the timing of orders around the end of the manufacturer’s first quarter (QI) and the beginning of the second quarter – typically representing up to 42% of sales – can disproportionately affect first quarter reported growth rates.
N+1 Singer analyst Matthew McEachran said: “Overall this statement is in line with expectations and, although the numbers may look bad, with management having already given some guidance around the approximate shape of trading in FMCG this year, they are also in keeping with full year assumptions.”
‘A deliverable ambition’
Turning Thorntons into an international FMCG business with a right-sized multi-channel UK core remains “a deliverable ambition”, while management continued to deliver on its strategic goals, said McEachran. Last year’s results were ahead of expectations despite the upset in the third quarter, he added.
Thorntons remained confident of improving operating profit margins further and maintaining positive profit growth for the full year.
“We continue to make good progress with our strategy of rebalancing the business and have exciting plans in place for the key Christmas season,” said Hart. “We remain mindful that the economic situation is still challenging for many of our shoppers and trade customers, although our growth plans do not depend on an economic upturn.”
If the manufacturer achieved a 10% blended return on sales, earnings before interest, tax, depreciation and amortisation should trend towards £38M, predicted N+1 Singer. The analyst retained its ‘buy’ advice on Thorntons’ stock.