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Thorntons profit warning sends shares down
From the Financial Times of Tue, 23 Dec 2014 09:01:28 GMT

There was no Christmas cheer for Thorntons on Tuesday as shares in the chocolate maker tumbled by as much as a third after warning it would miss its full-year profit estimate amid a decline in orders from UK supermarkets and supply chain problems.

The retailer, which has spent the past two years remoulding its business from a high street chain to a branded chocolates wholesaler to British supermarket groups, backtracked after insisting in October it was confident in meeting its pre-tax profit forecast of £9.5m for the year ending June.

However, it now expects earnings to be well below those achieved last year after many supermarkets took in stock later than anticipated. It also added that there had been a “significant reduction” in expected orders in the run-up to Christmas, hitting profits for the entire year. The company said it would disclose new profit estimates in January.

Thorntons shares, which have fallen 36 per cent in the past 12 months, were down 23 per cent after initially dropping by a third to 91.24p.

The company said operational snags at its new centralised Derbyshire warehouse had resulted in supply chain disruption during the critical festive season, weighing on its full-year performance.

“In particular in our UK commercial channel we experienced lost and late sales with consequent missed promotional slots and reorders. Our warehousing and distribution is now working normally,” Thorntons said in a statement.

“The move to a centralised warehouse was essential to meet current and future business patterns and growth.”

The profit warning follows a disappointing first quarter during which Thorntons’ sales had melted away by nearly 12 per cent due to the fluctuating timing of commercial orders, which now account for more than half of its total sales. But it had remained upbeat about its outlook.

Its UK commercial sales took the biggest hit with a 16.4 per cent decline, depressing overall revenues in its commercial channel, despite a rise in international sales.

“Embarrassingly, this Christmas profit warning comes less than six weeks after an upbeat strategy update with analysts,” said Nick Bubb, independent retail analyst.

“Despite good retail trading, management now expects a decline in sales in the UK commercial channel for the key second quarter, having previously said that the first-quarter decline was just a timing issue. This is a big setback to fans of the Thorntons recovery story.”

There were some sweeter spots in Thorntons’ trading update on Tuesday. The company noted that Christmas seasonal specialities had sold well and no significant seasonal stock was expected to be left over going into the new year. Smaller grocer, convenience and high street partners had reported some growth.

The confectionery company is still in the midst of its restructuring efforts. In a bid to shift focus away from its 249 own-brand stores, it is looking to reduce its presence on high streets to around 180 shops.

Nicola Mallard, retail analyst at Investec, placed forecasts under review, adding that further clarity would be welcomed when the company provided another trading update on January 19.

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