High end chocolatier Hotel Chocolat’s (HOTC:AIM) sales and profits were up 15% apiece in the first half to December, an impressive performance given the prior year’s demanding comparatives.
Yet the share price sours 2.5p to 320p as Hotel Chocolat warns the increased cost of purchasing some premium ingredients in euros will continue to constrain margins this year and into next.
NOURISHING NUMBERS
The premium British chocolate brand’s first half sales and pre-tax profit rose to £71.7m (2016: £62.5m) and £12.9m (2016: £11.2m), revenues up across its expanding store estate and across its digital and corporate channels.
Efficiency gains and economies of scale offset two ‘known cost headwinds’, namely the impact of 2016’s drop in the pound and costs arising from bringing subscription distribution in-house.
Impressively, despite significant spending on rolling out new stores, two shop relocations and upgrades to its Huntingdon factory, Hotel Chocolat closed the half with £18.3m (2016: £16.2m) net cash in the coffers.
Hotel Chocolat hit the dividend trail with a maiden 1.6p payment alongside September’s full year results. Today, it proposes a first half year dividend of 0.6p, only serving to increase its allure to income investors.
SET FAIR FOR KEY SEASONS
Passionate co-founder and CEO Angus Thirlwell enthuses ‘the critical Christmas period was again successful, helped by further improvements in availability, our best ever seasonal range and the extension of our one-stop gift solutions range.'
Thirlwell adds: ‘We have exciting plans in place for the key spring seasons of Mother's Day and Easter, and have recently launched a new cacao beauty range and a weekly subscription called Mbox. We are confident of further progress during the year.’
Hotel Chocolat’s sustainable competitive advantages include its distinctive brand and a vertically integrated business model.
Besides operating a thriving retail estate, Hotel Chcolat grows its own cocoa at a plantation in Saint Lucia, where it also has an eco-hotel ‘offering complete cocoa immersion thorough tree-to-bar experiences and wellness treatments’.
London-based investors may also be familiar with the company’s flagship restaurant and cocoa roastery in London's Borough Market: Rabot 1745.
While the wider high street is in turmoil - many a brick-and-mortar retailer is shuttering physical stores - Hotel Chocolat says the pipeline of new sites is ‘greater than previously expected’, drawing confidence from early results generated by new shops.
And on the digital front, Hotel Chocolat is not only enjoying digital growth through its own website, it has also won new wholesale accounts with online powerhouse Amazon and web-based grocer Ocado (OCDO), auguring well for future growth.
‘The increasing brand reach, including through the new Amazon and Ocado partnerships should be seen as a sign of ambition,’ says Liberum Capital’s Wayne Brown, bullish on the stock with a 410p price target implying almost 30% potential upside.
‘The first half results give us confidence in our full year forecasts and reflect the continued trading momentum and strategic progress that is being achieved,’ says the consumer sector sage.
‘Double-digit top line growth has flowed through to profit growth, despite cost headwinds, as the group benefits from underlying efficiency improvements. We expect these to drive greater EBITDA margin expansion going forward. The interim dividend is supported by strong cash generation, evidenced by both the improvement in free cash flow and the net cash position.'
