Hotel Chocolat swings to loss after taking £22m impairment on Japanese business

Hotel Chocolat has slumped to a loss as continued coronavirus restrictions in Japan led the group to write off its investment in a joint venture set up just four years ago.

The cocoa grower and retailer posted a £9.4million loss in the 12 months ending 26 June, compared to a £3.7million profit the previous year, even though sales climbed following the loosening of pandemic-related curbs in most markets.

For the third successive year, the Hertfordshire-based company said earnings and revenues in Japan fell.

When its joint venture partner offered an updated loan-funding proposal, Hotel Chocolat decided to abandon further investments in the project given the uncertainty about possible future Covid-19 restrictions.

A restructuring process was then instituted in order to look for alternative funding sources, resulting in a £21.8million impairment provision for the firm.

The company also incurred a modest charge from abandoning investment in directly controlled operations in its US market, which supply chain challenges have heavily impacted.

Logistics problems caused earnings to come in below forecasts despite international sales more than doubling to £11.6million.

To minimise supply chain disruptions and bolster growth, the group spent £20million enhancing inventory volumes, primarily on the Velvetiser hot chocolate machines.

This significantly impacted gross margins, as much of the added inventory was sold at reduced prices, and a larger share of the hot chocolate machines was made by third parties.

But discounting these one-off costs and other exceptional charges, Hotel Chocolat’s annual pre-tax profit increased from £9.6million to £21.7million.

A resurgence in UK store trade and robust growth in customer numbers helped offset a decline in online demand, thereby boosting total revenue by more than a third to £226.1million during the period.

Domestic sales were more than two-thirds above pre-pandemic levels, supported by investment in new categories and greater marketing spending.

Angus Thirlwell, Hotel Chocolat’s co-founder and chief executive, said the 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.’

He added that December is expected to be ‘busier than ever,’ buoyed by a focus on full-price sales and a continued rebound in store performance, with over half its Christmas gift range priced between £2.50 and £8.50. 

Russ Mould, investment director at online trading platform AJ Bell, said: ‘Like all retailers, Hotel Chocolat will be hoping for a bumper festive season.

‘Even though many people are under financial pressure, there is nothing like a nice box of chocolates if you’re lacking inspiration for a Christmas present. In that sense, Hotel Chocolat could be more resilient than people expect.’ 

Hotel Chocolat shares were up 2.1 per cent to 148p during the late morning on Thursday, although their value has plummeted by around 71 per cent this year.