Thorntons continues store closure programme

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Thorntons, the chocolate manufacturer and retailer, saw its shares rise 15 per cent on Wednesday after indicating it would close 120 high street stores and consider closing up to a further 60 over the next three years.*

The company expects to have culled 40 of its 344 UK stores by its financial year end, shaving £1m off its annual rent bill as it ramps up its commercial sales to supermarkets.

The share price rise came in spite of news it will axe its interim dividend after a weak set of half-year results, with profits all but wiped out after a gross margin decline of 420 basis points.

Retail analysts believe that cut-price promotional offers in supermarkets have damaged the Thorntons brand and are responsible for falling sales in its stores.

Thorntons was “a company at war with itself,” said Neil Saunders, retail analyst at Conlumino. “Deep discounting within the commercial segment over Christmas inevitably led to margins in the retail operating coming in below expectations,” he said. “Its days as the specialist chocolate retailer are well and truly over.”

In the 28 weeks to January 7, retail sales at its own stores fell 7.9 per cent to £68.3m compared with a year previously.

However, sales at its commercial division rose 6.9 per cent to £48.3m in the same period. After exceptional items, pre-tax profits were £618,000 compared with £8.3m a year ago.

Jonathan Hart, chief executive, said the company had a “strong order book” ahead of the spring trading period which includes Mother’s day and Easter, and was on track to improve margins. “Commercial will soon be our largest channel in terms of volume and value, and we expect to see headroom on our covenants improve in 2012,” he said.

The shares have fallen 80 per cent in the past year, and December’s profit warning caused many long-term institutional investors to abandon the stock. The shares have doubled since hitting a low of 9p last month, and are regarded as “option money” by less risk-averse investors.

“As a brand name alone, Thorntons has got to be worth more than the current market capitalisation of less than £12m,” said David Jeary, retail analyst at Investec, who forecasts that the company will break even this year. “Thorntons has passed covenant tests, its debt levels are low and management are making optimistic noises about improving margins, which is building the recovery story.”

On Wednesday, the shares rose 2.5p to close at 19p.

*This story has been updated

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