Candy maker Hershey presented its 2020 second quarter financial results on July 22, and shared an outlook for a subdued upcoming Halloween — the company’s largest selling season.
In a conference call with analysts, Hershey chairman and CEO Michele Buck shared that the company has taken inventory action steps as the holiday gets closer, trying to right-size its trick-or-treating portion of its candy portfolio in the case that demand for such product is less this year around.
“We planned for that. We tried to mitigate our risk by, as we look at the trick-or-treat portion of the portfolio, pulling back on seasonal packaging, having more every day. So that’s another lever we used, and then really working through the mark-down plan.”
Buck’s comments were in response to a question about how the Halloween consumer sell-through process will happen. Buck said that the holiday typically comprises 10 percent of Hershey’s total annual sales. She was asked a handful of Halloween-related questions, but despite the COVID-19 factor, she consistently relayed a sense of optimism.
“While research indicates trick-or-treating participation will likely be below prior year levels due to COVID-19 concerns, the expectation of this holiday tradition has been consistently improving over the past several weeks,” Buck said. “We expect to outperform the category given our iconic brands, strong innovation and merchandising, and great execution.”
Buck shared that typically, nearly 50 percent of Halloween candy spend is on “treat for me” and “candy bowl” occasions, which start early in the season, while trick-or-treating represents the other 50 percent of spend and has sales concentrated in the last two weeks of October. Buck said the factors that trick-or-treating is a mostly outdoor activity, many of those participating will be wearing masks and that there is no evidence of COVID-19 being passed through packaging or food leave the company to “feel pretty good based on what we’re seeing so far from consumer feedback.” She added that if the trick-or-treat portion of holiday sales tends to be a little lower than expected, Hershey will focus more on the treat-for-me and candy bowl occasion.
iStock“From a holiday perspective, we do have an early read on the holiday; we have started producing product. At this time, we don’t really see seasonal participation being significantly impacted, and a lot of that is due to the fact that many holiday occasions and consumption is actually at home. We think that’ll be less likely to be disrupted, but obviously we will continue to monitor that closely, to work closely with our retailers, as we have with Halloween.”
Hershey reported Q2 total sales of $1.71 billion, down 3.4 percent year-over-year, with organic sales down 3.5 percent. The company had total Q2 profit of $269 million, down 12.8 percent. Hershey said the sales decline was driven by a 7.0 percentage-point headwind from volume, largely due to COVID-19 pressures in the company’s International and Other segment, along with price elasticity in North America. Q2 operating profit of $383 million was down 6.5 percent from a year earlier.
The company’s North America sales of $1.58 billion increased 1.0 percent year-over-year, while International and Other sales sunk 38.0 percent.
Hershey reduced its selling, marketing and administrative expenses 9.9 percent in Q2 year-over-year, with advertising and related consumer marketing expenses down 14 percent.