Thursday, 19 February 2009
Turnover isn't profit.
Thornton's, the chocolate people, have reported a sharp decline in half-year profits as deteriorating high street conditions forced it into extended periods of discounting. For the 28 weeks to January 10th Thorntons experienced a 39% drop in pre-tax profits despite an overall sales increase of 1.3%.
Thorntons are also blaming Woolworths for the decline in sales, something that we felt would happen last year. Woolworths effectively forced DVD/Sweets/Toys/General goods stores to slash 20%-40% off prices just to compete with the wholesale administration clearout. We thought that the slide of discounting would be particularly bad news for card retailers. Clinton Cards has voluntarily decided to enter talks with its lenders to renegotiate its debt, believed to be around £72 million. The debts, which are held with Royal Bank of Scotland and Barclays, comprise a £60 million working capital facility plus a £12 million loan facility. 6,000 jobs are at stake.
Clinton's rivals the Cardfair and Card Warehouse chains closed down, without the Woolies fanfare, in January of this year with the loss of 1,400 jobs.
As stated previously retailers won't sell goods for no profit. As the Thorntons example shows, generating a lot of turnover just generates a lot of VAT payments. Store prices are NOT falling. Water charges rising by 4-5% too. So we are going to start our money printing without the hoped for - 0% inflation.