Further forecast upgrades accompanied yet another tasty trading update from premium chocolate maker Thorntons (THT). Yet the shares fell 7.5% to 89.75p in early dealings as investors took some profits off the table after a year-long rally in the stock.

THORNTONS - Comparison Line Chart (Rebased to first)

Having struggled for many years, reinvigorated Thorntons is now in an upgrade cycle and only recently (2 July) regaled the market with news profits for year to 29 June would beat the £4.6 million consensus estimate. This means much of the good news pushed out in today's fuller statement was already in the share price.


Nevertheless, the £66.3 million cap today treated investors to news of a strong fourth quarter, during which the chocolatier's total sales sweetened up 5.6% to £26.8 million. Helping to drive performance was a 0.5% rise in 'Own Store' or retail like-for-like sales, an acceleration from growth of 0.2% achieved in 'Q3'. After posting declines of 1.7% and 1.3% in the first and second quarters respectively, the retail business has now delivered positive like-for-like sales growth across the whole of the second half.


While encouraging, it should be noted overall Own Store sales fell 3.8% to £13.9 million reflecting the ongoing programme of store closures. Now with 296 Own Stores, Thorntons is seeking to pare its retail estate to somewhere between 180 and 200 shops and the rate of overall Own Store sales decline is moderating, having fallen by 7% and 9% in the first and second quarters respectively, then by lesser rates of 4.1% and 3.8% in Q3 and Q4.


Strong growth was delivered again in the commercial division, which sells products into the major grocery multiples and is set to become the biggest arm of the business by the end of the current financial year. UK Commercial sales grew 11.8% to £9.2 million, good going given a very demanding 45% comparative, while sales in Thorntons' small international and private label businesses both more than doubled to £900,000 and £700,000 respectively.


Chief executive Jonathan Hart's turnaround plan to rebalance and restore profitability at Thorntons, which includes the development of the company's presence in the year-round chocolate gifting market in order to reduce seasonality, continues to bear fruit. Hart concedes 'the trading environment continues to be challenging', yet says 'the actions we have taken are delivering positive results reflected by the progressive recovery in our profitability over the past 18 months.'


Investec Securities' Bethany Hocking has a positive stance on Thorntons centred around the ongoing shift in the business model from a retailer to a fast moving consumer goods (FMCG) group with a retail estate attached and boasting 'impressive' commercial margins. 'We increase our pre-tax profit forecast by 16% to £5.2 million and 2014 financial year pre-tax profit increases similarly from £6 million to £6.8 million. Our target price increases to 112p and we reiterate “Buy”', writes the analyst in a note this morning.

Issue Date: 15 Jul 2013