Premium chocolate maker Thorntons (THT) has jumped 10.3% to 46.75p as investors toast a 71% surge in first-half profits and improving cash generation. Half-year figures demonstrate the hard-pressed chocolatier is heading in the right direction under chief executive officer Jonathan Hart.


The £32 million cap's interim figures to 12 January reveal a 71% rise in pre-tax profits to £5.3 million, before one-off items. Buoyed by brisk Christmas business, sales edged up 2.9% to £133.7 million. Investors will also welcome an increase in cash generated from operations to £15 million (2012: £11.6 million).


Hart's plan to rebalance and restore profitability at Thorntons, involving the closure of unprofitable 'Own Stores' and development of the company's presence in the year-round chocolate gifting market in order to reduce seasonality, appears to be paying off.


In particular, the food producer pleased with strong evidence of market share gains in the UK Commercial channel, where sales of Thorntons-branded product increased by 16.1% to £51.8 million. Thorntons is growing its share of the market for boxed chocolate and Christmas seasonal specialities sold into the grocery multiples. Hart envisages the commercial channel becoming the biggest part of the business over the next couple of years.


Thorntons' structurally-challenged Own Store estate will shrink to between 180 and 200 shops 'in the medium term', with 40 stores closing in the current fiscal year. Reflecting these store closures, Thorntons reports a 8.3% drop in Own Store sales to £62.6 million, while franchise sales decline by 25.4% to £5 million and sales fall 12% to £5.9 million at Thorntons Direct as a result of 'operational issues' and corporate customer caution.


'With sales already announced, the key focus of today's interim results is on profitability', writes Investec Securities analyst Bethany Hocking, sticking with her 'hold' recommendation and 45p target price. 'First half underlying pre-tax profit of £5.3 million...(is) a good performance in our view and further evidence that the strategy is working.'


For the year to June, Investec forecasts that pre-tax profit will rebound from £900,000 to £3 million, although the outcome will owe much to trading over Mothers' Day and Easter. Moreover, while success in the commercial channel is encouraging, the grocery market remains highly promotional and there is a risk that sales are being won at the expense of margin.

Issue Date: 25 Feb 2013