Thorntons has suffered a drop in sales and profits after a below par year.
The company saw pre-tax profit fall by 8.8% to £6.5m, while sales were down 8.2% to £128.2m, for the second half of 2014.Thorntons puts these results down to a decline in orders from two major supermarkets over the Christmas period. During this time the company saw its share prices halve, with news of the financial results causing share prices to fall by 8% in early trading hours this morning.
The results are linked to the ‘supermarket wars’ which have been problematic for Thorntons, as it sells large quantities of products through the major food stores. After revamping its marketing strategies and closing down many of its unprofitable shops, supermarkets have been fundamental to the chocolate retailer’s business plan.
Tesco, Morrisons, Asda and Sainsbury’s have been battling it out with German discounters Lidl and Aldi, which offer thrifty customers cheaper options. The clash has caused a profit loss for the large competitors, as Asda’s sales fell last year. The supermarket giant suffered a loss of 2.6% in like-for-like sales in the 12 weeks leading to January, a result of the company spending £300m on lowering its prices in 2014. Morrisons also witnessed a decline in its sales, which fell 3.1% from mid December to January 4.
Thorntons’ problems are not from a lack of UK consumer spending, which reached its highest point in four years at the start of the year. The Derbyshire based firm’s decline is a result of supermarkets causing the price of basic items to drop 1%, in comparison to early 2014. Though customers are spending more, they are becoming considerably more cautious with their spending. They are able to use apps to price check most items and compare values across the fours major company’s.
Chief Executive of Thorntons, Jonathan Hart is “disappointed” with the results but hopeful that 2015 will see some improvements:
“We continue to be cautious in our expectations for the full year. We are well positioned to take advantage of an improvement in consumer spending.”
Unfortunately for Thorntons, until supermarket profits are turned around, the company’s luck is unlikely to improve drastically. An analyst from Investec warned, “confidence has been impacted, but this should recover when the market feels assured of a return to growth in FMCG, although this might only arise next year, given marked seasonality”.