THE PRIORITY for Michael Killick on taking up the position of finance director at chocolate maker Thorntons on 17 February is clear. Arrest the company’s declining sales. He replaces Mark Robson who is leaving the company to take up a role at a private equity firm.
The chocolatier reported that sales over its key Christmas trading period fell short of expectation as a result of a combination of store closures and the continuing tough retail environment.
The company, which operates 574 stores across the UK, said that sales in its own stores fell by 6.8% to £44.9m during the 14-week period up to 7 January 2012, while like-for-like sales dipped by 4.2%.
Sales across the group as a whole were up 0.6%, supported by an 8.1% increase in Thorntons Direct sales to £5.5m, while consumer and online sales grew strongly by 13% year-on-year.
The second quarter decline is in line with the company’s December profit warning, although it predicted that it will break even in the 53 weeks to 30 June 2012.
Thornton’s chief executive Jonathan Hart said that the company had suffered at the hands of cost conscious consumers, in addition to being hit by a high level of promotional activity across the market.
“This has been evident across all our sales channels and has negatively impacted our gross margins,” Hart said.
In September, the company reported a £0.2m loss for the year to June 2011, compared with a profit of £4.4m in the previous year. In June it announced plans to close up to 180 stores over three years.
Killick seems to be the right man to take the reins. He has a wealth of experience in the retail sector and customer facing business having spent 11 years with The Peacock Group, latterly as chief financial officer. Before joining Peacocks, Killick was group finance and IT director of Bennetts GB, the retail insurance broker, and assistant finance director of Going Places Leisure Travel.
“Given his experience, he has a deep understanding of the challenges facing retailers on today’s high streets and the financial management that is required to assist a business at such times,” said Hart.
Thorntons, which owns 7.7% of the UK chocolate market, said it expects continued weakness in consumer sentiment throughout 2012.
“This reaffirms our strategy to rebalance the business, create a smaller real estate, revitalise our brand and most importantly restore profitability over the next three years,” said Hart. “Looking ahead, we have a strong spring range and our commercial sales orders for Easter are in line with our expectation.”
Thorntons’ profit margins have been hit by supermarkets cutting the price of Thorntons chocolates and using them as a loss leader, while also being hit by growing competition from upmarket chocolate brands such as Hotel Chocolat, which is expanding its UK operations (see page 26).
Retail analyst David Jeary, at Investec, told the Guardian: “The level of promotional activity and discounting in supermarkets appears to have been a lot more this year than last year. This has an impact on gross margin as supermarkets pass it back on to their suppliers.”
Espirito Santo analyst Sanjay Vidyarthi added: “While management has in place a strategy to reduce the store portfolio from 364 to around 200 over the next three years – replacing them with franchised stores – concerns remain as to whether this can happen quickly enough to offset the underlying attrition to high street sales.”