HERSHEY, Pa. -- Hershey Co. will aim to beef up its presence in convenience stores by placing new display racks in some 50,000 stores nationwide. The plans come as stock analysts just how sweet or sour the Hershey, Pa.-based company's second half of the year might turn out, according to a report in The Wall Street Journal.
The nation's largest chocolate maker by market share indicated just a few weeks ago that it expected a strong end of the year, helping drive annual net sales growth somewhat above its long-term range of from 3% to 4%. But some [image-nocss] preliminary data from checkout-counter scanners suggest Hershey's sales may be weakening as the company faces tough competition from, among others, closely held Mars Inc., according to WSJ.
The data prompted J.P. Morgan Chase & Co. analyst Pablo Zuanic to cut his recommendation on Hershey's stock to hold from buy earlier this month. Zuanic calculates that the company has lost 2 percentage points of chocolate market share during the past two months, a scary prospect with the approach of the Halloween candy-selling season.
He doesn't expect to see improved trends until April of next year. Zuanic doesn't own Hershey stock. J.P. Morgan has a business relationship with the company. Hershey declined to comment, according to the newspaper.
The hit to Hershey's stock comes as the company seeks to tap into America's growing taste for high-margin dark chocolate. This month, it is rolling out a new line called Cacao Reserve, which includes both milk- and dark-chocolate offerings.
Since Hershey Chairman Richard H. Lenny came on board five years ago, the company has emphasized innovation not only in its products, but also in its operations. The maker of Reese's, Almond Joy and other sweets has pushed hard to expand sales into new channels, striking a deal, for instance, to put its candies in 1,700 Home Depot Inc. stores around the country.
Moves like this have helped bolster the stock, which more than doubled in price between 2001 and 2005, when it peaked at nearly $67 a share. Since then, though, the stock has tumbled by more than 20%. According to Thomson Financial, Hershey's shares trade at a little more than 18 times expected earnings for 2007, slightly cheaper than Wm. Wrigley Jr. Co.'s estimated per-share multiple of about 21.
One concern involves Hershey's abilities to improve sales through convenience stores, which are a growing source of candy sales. In recent years, Hershey said, the number of trips to traditional grocers is down 12%, while trips to what it calls value and convenience stores are up 13% over the same period. Grocery stores are Hershey's leading source of sales, accounting for 28% of revenue.
Convenience stores also are a hot spot for a big group of candy-bar buyers: young men. They are the largest and most frequent shoppers within convenience stores, according to Hershey, with 68% of them shopping at least once a day.
But Hershey is underrepresented in convenience stores. It gets some 16% of its sales from them, according to the newspaper report. Its overall U.S. confectionery market share is 30%. To beef up its presence in the stores, Hershey has announced plans to put new display racks in some 50,000 convenience stores nationwide.
Hershey also is trying to get consumers to buy more profitable types of chocolate. One of the hottest trends in the chocolate business is dark chocolate, which has a higher percentage of cacao than milk chocolate.
Credit Suisse analyst David Nelson said concerns over Hershey's recent sales data may be overblown. Nelson, who has the company rated the equivalent of a hold, said that most of Hershey's sales come from retailers such as Wal-Mart Stores Inc., whose sales aren't typically reflected in the scanner data most often used by analysts. Nelson noted that Hershey's sales to consumers through the second quarter were up a strong 6.6%, which he thinks bodes well for the rest of the year.
Members help make our journalism possible. Become a CSP member today and unlock exclusive benefits, including unlimited access to all of our content. Sign up here.