Hotel Chocolat takes ‘quality over quantity’ approach to cut discounting, as it reports full-year sales growth but a pre-tax loss

Image courtesy of Hotel Chocolat

Image courtesy of Hotel Chocolat

Hotel Chocolat says it’s taking a “quality over quantity” approach to reduce discounting and boost full-price sales, as it reports full-year turnover up by more than a third – but a pre-tax loss.

Hotel Chocolat today reiterates plans to pull back from its international businesses, halting sales in the US and rethinking its Japanese joint venture, as it looks to take a lower cost approach to selling in other markets. The omnichannel chocolate brand also says it’s seeing shoppers return in-store, where sales densities are rising even as sales weaken both via online and via wholesale channels.

Angus Thirlwell, co-founder and chief executive of Hotel Chocolat, says much of today’s strategic update was first announced to the market in July. “Since then, the performance of our retail stores continues to beat 2019 pre-covid levels and subscriptions are in growth too,” says Thirlwell. “We have reduced online marketing spend resulting in lower volume, but higher quality full-price sales. Our wholesale partners are also showing caution too.

“The Hotel Chocolat brand has huge resonance with shoppers and despite the macro-economic environment, people are still treating themselves with affordable luxury and remaining loyal and we are winning new customers who recognise our quality.”

Full-year figures

The update comes as Hotel Chocolat reports revenue of £226.1m in the year to June 26 2022. That’s up by 37.4% from £164.6m a year earlier. In the UK, sales grew by 35%, year-on-year, and by 68% compared to pre-pandemic 2019. The retailer now believes it has a larger potential audience in the UK than it previously thought, as its appeal widens.

International sales grew by 126% – but less profitably than expected, and the retailer is now moving out of direct-to-consumer sales in the US. Hotel Chocolat has also written off the value of its Japan joint venture, which continues to trade but has been under civil rehabilitation protection since July 2022. The retailer is now in talks around a new partnership in the market on a brand licensing model, and says it now plans to take a capital expenditure light approach to international sales, via a global wholesale model. 

Hotel Chocolat says that its inventories during the year were £20m higher than the previous year as it focused on growing quickly and looked to mitigate potential supply chain risk, predominantly in holdings of its Velvetiser machines. 

At the top line it reported underlying pre-tax profits of £21.7m  – up from £9.6m a year earlier. But one-off costs of £30.4m, mostly related to the shift in its international strategy, meant that at the bottom line it reported a pre-tax loss of £9.4m, down from a pre-tax profit of £3.7m a year earlier. The retailer says it has substantial room within its lending facility, with £32m available as well as £9m cash in hand. 

Looking at current trading, Hotel Chocolat is about a third of the way through its trading year, with in-store sales in line with last year, but softer trading through online and wholesale channels. 

Thirlwell says: “It goes without saying that the current environment is challenging on multiple fronts. Over the last few months we have taken decisive steps to reduce risk and to fully pull all our self-help Ievers in both our manufacturing and retailing businesses. One thing is for sure, we will never compromise on the brand standards and values which have built our following to this point.

“We remain fiercely ambitious for the Hotel Chocolat brand for growth in both UK and international markets. Our new stores showcasing the format of the future opened in Norwich and Northampton and are trading very strongly. Internationally we intend to utilise more risk-contained techniques to capitalise on the proven brand appeal in major international markets.”

He adds: “As we head into our busiest part of the year, I am confident that the strategic direction we have put in place will improve the prospects of the business for significant years to come. Our decisions to focus on full price sales and quality over quantity, coupled with a resurgence of physical store performance means that we anticipate December will be busier than ever.”

Hotel Chocolat is a Top100 retailer in RXUK Top500 research

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