Hotel Chocolat delivers a sweet performance

Releasing chocolate-drenched results on Ash Wednesday seems indecent, but despite the temptations on offer even sweet-abstaining investors would do well to pore over Hotel Chocolat’s (HOTC) latest results. The premium chocolatier announced robust growth in sales and customer numbers, with profits up by more than a half.  

The company, which has a digital-focused strategy, made good progress across channels and markets. In the key UK & Rest of the World market sales were up by 39 per cent. Active customers jumped 38 per cent to hit 2.3mn in the UK. Better terms were agreed for 35 per cent of retail leases, with more to come.

Overseas markets – the US and Japan – aren’t yet profitable. But headway is being made. Sales in the US were up by 150 per cent, with the performance of the Velvetiser hot chocolate machine a standout. In Japan, sales grew by 131 per cent and nine new stores opened their doors. The future looks bright for this part of the business.

On the downside, the gross margin fell by 120 basis points to 59.8 per cent due to increased input costs and foreign exchange hits. The dividend has also not yet been reinstated – management said this will continue to be reviewed against the need to invest for growth.

With a well-performing multi-channel model, solid brand equity, and a promising long-term outlook, the shares currently look like good value. Peel Hunt analysts said that they “offer a great opportunity at the moment and a twenty something PE undervalues the brand”. The broker forecasts a PE ratio of 27 and then 24 times for the 2023 and 2024 financial years, a range which looks attractive given growth prospects. We maintain our recommendation. Buy.

 Last IC View: Buy, 425p, 5 Oct 2021