Recovery at Thorntons one chunk at a time

The trading update from chocolatier Thorntons was reassuringly dull, and prompted a rise in the shares which have been on the recovery trail in the second half of 2012.

Although Jonathan Hart, the Chief Executive of Thorntons, said the company was cautious in its outlook for the peak Christmas trading season, the market was comforted that trading in the 14 weeks to October 6th was in line with expectations.

Retail sales melted away, but commercial sales improved, leaving total sales down a smidgen at £46.0m from £46.5m the previous year.

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On the retail side, sales in Thorntons' own stores were down 7.0% year-on-year, while online sales were down 8.5% on the corresponding period of 2011.

The real slump was in franchise stores, where sales were down 23.8% on a year ago, largely reflecting the collapse of the Clinton's cards retail chain.

Commercial sales were up 9.8% on a year ago, with private label sales up an eye-popping 222.3%, unfortunately from a low base of £1.0m, to £1.4m. The Commercial Channel - sales to other retailers - is fast becoming the most important part of the business. It saw sales improve 4.9% from a year earlier to £19.8m.

"The mild disappointment for us on the composition of the sales trends was the +9.8% growth (vs. our expectations of +11 to +12%) in the key Commercial business," writes Peter Smedley, of broker Charles Stanley. "We think however this reflects the timing of stock dispatches to key supermarket clients," Smedley adds.

House broker Investec concurs. "Commercial sales are typically 'lumpy' at this time of the year due to delivery timings," notes Bethany Hocking at Investec.

The key point for Hocking is that the order book for Christmas trading remains, in Thorntons' own words, "strong and in line with previous expectations".

"Given the tough backdrop, management has sensibly adopted a cautious stance in peak trading plans. We are very positive on the strategy, and recent product innovation has been encouraging, in our view," the house broker loyally continues.

Even the house broker, however, rates the shares as no more than a "hold", although given the shares are trading at around 31p after falling below 10p in the dark days of January, perhaps that is not altogether surprising.

The company's stores are still a familiar site on Britain's mainline railway stations, where they remain a valued resource for forgetful husbands, no doubt, but the same could once be said (except for the forgetful husbands bit) of Sock Shop, which went into administration in 2006.

The number of Thorntons stores in the reporting period reduced from 330 to 320, but that still seems a lot for a chain selling premium priced inessential products in this age of recession.

Management probably agrees. The last word goes to Charles Stanley's Peter Smedley: "We continue to see Thorntons as a classic, self-help turnaround story that should increasingly attract the attention of investors as it shakes off the perception of an embattled chocolate retailer and transitions towards a fast moving consumer goods branded model."