Hotel Chocolat shares significantly impacted, as group closes its US retail stores
Bath, Somerset, UK, 22nd February 2019, Shop Sign for Hotel Chocolat
The Hotel Chocolat group has reportedly suffered a share drop of more than 40%, as it opted to withdraw from its US confectionery stores amid challenging trading conditions, reports Neill Barston.
According to the company’s latest trading update, despite recording strong UK results, the business has incurred £23 million of costs relating to its Japanese joint venture, along with £3 million linked to closing its four retail outlets based within America, where the business had previously been experiencing an upturn that led to its expansion in the region.
However, with ongoing economic uncertainties, including notable increases in ingredient sourcing, the business has hit notable headwinds in the US, where it reportedly intends to continue operating online.
In its latest trading update covering the 52-week period ending 26 June, the company said that its total group revenues in fact increased by 37% to £226m (FY21: £165m), ahead of market consensus expectations. The company said the second half of its year showed robust growth of 32%, against stronger comparatives in Q4 FY21 following the end of “lockdowns.”
Despite this, the company said that while underlying profits were in line with expectations, its full year profits were expected to post a loss associated with the cost of discontinuing its retail stores in the US.
Furthermore, the company added that it had raised £40m of new equity in July 2021 to support growth investments, with its board now seeking to ‘de-risk’ its activities, focusing on lowest-risk strategies with the greatest potential for further increased profitability.
It identified core areas of growth including VIP loyalty and digital operations, as well as its Velvetiser hot chocolate system and Velvetised chocolate cream alcohol continue. It said that in response to the changed global climate, investment levels in the US and Japan would be ‘materially reduced,’ with ongoing investment limited to essential working capital only. It noted that this would in turn lead to lower profit projection for 2023.
In spite of withdrawing from the US, the business added that it enjoyed notable strength in the UK, with its multichannel sales driving growth of 35% against 2021 figures.
Angus Thirlwell, Co-Founder and Chief Executive Officer, said: “The Hotel Chocolat brand is achieving very strong growth in the UK, and we are pleased to have beaten sales expectations and expect to meet underlying profit expectations for FY22.
“The way the market has rapidly changed for all businesses in the second half certainly emphasises the resilience value of investments that we have made over the last 20 years: in building a differentiated brand with strong customer loyalty, a unique and desirable product range, and our own, dependable UK chocolate factory.
“A year of exceptional sales growth following two years of reactionary tactics to the pandemic has left clear opportunities for us to proactively streamline overheads and improve gross margins. We have set ourselves the target of becoming a 20% EBITDA margin business within three years by applying systemisation, automation, and capacity investments to our 70% larger scale (FY22 vs FY19).
“While we expect a temporary lower sales growth rate and profit margin for FY23 as we carry through our adjustments, the result will be a business delivering greater results, with less risk and an even stronger balance sheet with a higher profit percentage growth in FY24 and FY25,” adding that the Velvetiser and Velvetised cream alcohol were key successes, along with its online stores.