The Investment Column: Thorntons sweet after shake-up

INVESTORS in Thorntons, the chocolate retailer and manufacturer, must be delighted with the performance of the company since Roger Paffard took over as chief executive two years ago. The shares have motored from a low of 135p in early 1996 to a new high yesterday of 292.5p, up 5p on the day, after a big shake-up of the group.

Thorntons has been closing smaller underperforming stores and relocating others to larger, more high profile sites. In the six months to 10 January Thorntons accelerated its opening programme with 61 new or re-located stores. The current total of 327 branches is 31 higher than the 296 a year ago and the aim is for 500 stores by 2001.

Sales have been encouraging with the Thorntons non-franchised stores achieving like for like sales growth of 12 per cent. This boosted first half profits to pounds 11.5m, an increase of 15.5 per cent before exceptionals of pounds 11.5m. Current trading shows sales growth in line at 8 per cent. This represents a slowdown which management says was expected as the stores are now up against tough sales comparisons which include the first upgraded outlets of last year.

Thorntons still has more than 100 stores to re-fit or move to better sites so there should still be more room for growth assuming the right sites can be found in a competitive market.

The concern is that the company might be taking on too much. It is also testing five new initiatives but says it will probably only roll out two or three. These include a new coffee shop format, travel locations in railway stations and airports, mail order brochures and more franchise shops. Some of these have already made good progress; there are eight coffee shop formats and a "barrow" style unit at Waterloo station is taking as much as a full size shop. Even so management must be aware of the dangers of spreading itself too thinly.

Assuming full year profits of pounds 12.9m the shares trade on a forward rating of 23. This is quite racy even for a company set to improve earnings by 15 per cent next year. After a good run they look too pricey to chase now.