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Hotel Chocolat expects 3% sales rise after year of two very different halves

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Hotel Chocolat today said it expected full-year sales to be 3% ahead of last time, after a year of two very different  halves. Sales were up by 14% in the first half of the year – but fell by 14% in the second half as its shops closed during the coronavirus lockdown, although digital sales were up by more than 200%. The retailer now plans to create 200 new jobs this year as it expands its distribution and manufacturing capacity.

The multichannel chocolate manufacturer and retailer said in a full-year trading update that shoppers spent £136m with it in the 52 weeks to June 28 2020, up by 3% compared to the previous year. First-half sales came in at £92m, up by 14% on the same time last year. But second half sales of £45m were down by 14% as all of its shops closed between March 22 and June 15, missing the key chocolate gifting dates of Easter and Mother’s Day. Its factory also closed for eight weeks while Covid-secure working was put in place. It opened in May and is now operating at 90% of normal capacity.

Hotel Chocolat said digital sales were up by more than 200% during the fourth quarter alone, as customers bought more gifts online and subscriptions, including for hot chocolate refills for its Velvetiser hot chocolate maker, rose by 47%. This growth was enabled as the team collected Easter inventory from more than 100 shops, reduced the online product range temporarily and created pre-selected product bundles so that distribution workers could handle a surge in online demand as safely as possible. 

Angus Thirlwell, co-founder and chief executive of Hotel Chocolat, (pictured) said he had been hugely impressed by how the team responded during the pandemic. “The acceleration of change in the retail landscape has galvanised us to speed up our plans and investment in the opportunities we were already pursuing,” he said.

“Our physical retail usually accounts for over 70% of sales in the second half but all locations were closed for the entire Easter period this year and beyond. It is a testament to our lovely customers’ loyalty that they switched in droves to online and we contained the group impact to only -14 % in the half.    

“Online, our brand is now set to a significantly faster growth trajectory, delivering gifts, subscriptions and household indulgence. Some of this is attributable to Covid-accelerated change , but new concept launches, and digital enhancements have also supported growth. The Velvetiser in-home drinks system, the VIP loyalty programme , and new subscriptions capability will continue to generate growth in the years ahead.

“We remain positive about the unparalleled leisure experience a physical Hotel Chocolat can deliver within our multi-channel direct-to-consumer model. All we need is footfall , and so far we are seeing that return at different rates. Residential areas are stronger, with city centres more subdued without as many commuters and tourists.   

“We pledged at the beginning to keep the Hotel Chocolat family together through this, and that is what we have done. We are confident about the prospects for our business and are actively creating 200 new jobs this year, primarily roles in our UK chocolate-making factory and enlarged distribution centre.” 

The company, ranked Top100 in RXUK Top500 research, says that the introduction of new working practices meant that overheads and costs had increased short-term in the second half of the year, and that profit margins were lower, but it had led to increased agility and resilience at the same time. It still expects pre-tax profits to be in line with previous expectations, although it is reviewing the value of some of its fixed assets and may write them down as a result. 

Currently 119 Hotel Chocolat’s 125 UK shops are open for business. It says that sales in its high street locations are performing more strongly than those city centre locations used by commuters. Total store sales are lower, year-on-year, but digital growth is very strong and group sales are in line with expectations. Hotel Chocolat says it has seen similar patterns in the US and Japan, where it works with a joint venture partner. 

Hotel Chocolat raised £22m for investment in March and since then it has signed a new five-year lease on a bigger distribution centre in Cambridgeshire that it is currently fitting out. The centre, it says, will increase supply chain capacity by more than 100% for the next financial year. It has also invested in increasing UK manufacturing capacity and launched a new VIP loyalty app. In the current financial year it plans more developments including introducing gift sending to the app and new kinds of subscriptions.

Today it has £25m cash on hand, and a total of £69m headroom within agreed banking facilities. 

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