Lindt chocolate bunnies are one of the rare items to remain plentiful in shops stripped bare by stockpilers. The Swiss chocolatier’s own stores in Europe, its biggest market, have been closed amid the coronavirus outbreak. As a result, Lindt & Sprüngli has withdrawn its target of 5 to 7 per cent sales growth and 20 to 40 basis points in operating margin improvement this year.
The company’s share price rose despite the announcement. Consumer goods such as toothpaste and shampoo are seen as defensive stocks during economic downturns. Lindt appears to have been included in that group.
Investors are betting on chocolate being recession resilient. Lindt shares show a strong correlation with 10-year German bond yields even relative to other European staples, according to BNP Paribas.
Stressed-out snackers may well find themselves reaching for comfort food. But Lindt is more likely to be a victim of cuts in discretionary spending on luxury goods this year. In 2009, following the financial crisis, Swiss chocolate sales fell to 174,000 tonnes — 6 per cent less than the previous year. A similar dip may take place this year. The pain is yet to be felt fully as two-thirds of Lindt’s sales usually come in the second half of the year. Easter sales will act as an early warning.
Meanwhile, costs are rising. Lindt chief executive Dieter Weisskopf warned that Easter eggs would be more expensive this year. Makers must pay $400 per tonne extra for next year’s cocoa from Ghana and Ivory Coast, which produce 60 per cent of the world’s beans. The worry is what happens as the virus spreads in west Africa. Logistical problems could push up costs further. Processing facilities in Europe are likely to encounter problems sourcing staff if lockdowns continue.
Yet in spite of such problems Lindt shares trade as if demand will hold steady. The price to forward earnings ratio dipped below 30 times this month for the first time since 2013. Much like its chocolates, Lindt’s shares remain pricey.
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