Russell Stover’s Slow Turnaround Weighs on Swiss Parent LindtBy
U.S. brand’s realignment to take longer than expected
Weak U.S. chocolate demand has also tripped up Hershey, Nestle
Lindt & Spruengli AG still hasn’t digested its 2014 acquisition of U.S. confectioner Russell Stover, which came just as demand for sweets started to plummet in the U.S.
The world’s biggest maker of premium chocolate forecast the weakest revenue growth in at least eight years amid a challenging U.S. market that has also weighed on Hershey Co. and Nestle SA. Shares of Kilchberg, Switzerland-based Lindt declined as much as 5.3 percent in Zurich trading.
While global chocolate sales have begun to recover, U.S. consumers are cutting down on sugar as they seek to cinch in their waistlines. With e-commerce on the rise, store traffic has slowed down, meaning fewer impulse purchases in supermarkets and drugstores.
“The company is being hurt by structural change in the North America market and the trend to healthier snacking and online shopping,” said Jon Cox, an analyst at Kepler Cheuvreux.
Nestle last month said it may sell its underperforming U.S. confectionery business, and Hershey has been cutting 15 percent of its workforce as chocolate makers cope with sluggish sales.
Lindt said its revamp of Russell Stover is lagging because sales are concentrated around holidays, limiting opportunities for introducing new lines. Russell Stover has a “very good” offering for the Christmas season that will accelerate growth in the October-to-December period, Lindt Chief Executive Officer Dieter Weisskopf said in a phone interview.
“The strategic realignment of Russell Stover is taking a bit longer because of the nature of the seasonal business,” Weisskopf said. “If one notices that a Valentine’s Day promotion, price point or change in box isn’t selling well, it takes at least a year to correct it.”
Russell Stover is introducing sugar-free items like stevia-sweetened chocolate in the U.S. in September, though the company has no plans to expand that to the Lindt brand or the rest of the world.
Sales growth will be slightly lower this year than in 2016, when it was 6 percent on an organic basis, the company said. Operating profit advanced 6.7 percent to 105 million francs ($111 million) in the first half, missing analysts’ estimates.
First-half revenue rose 3.6 percent on an organic basis. Lindt said in March full-year sales growth would be similar to that of 2016. The company has an annual targeted range of 6 percent to 8 percent growth.
Jean-Philippe Bertschy, an analyst at Bank Vontobel AG, said the organic growth was very weak and questioned if Lindt can accelerate growth to at least 6 percent in the second half, given the tougher comparison base.
The maker of chocolate Easter bunnies wrapped in golden foil opened 20 stores in the first half and now has more than 390. Last year, Lindt said it plans to overtake Godiva as the world’s biggest retailer of premium chocolate by 2020. Godiva runs more than 600 boutiques, according to its website.