Shares in premium British chocolatier Hotel Chocolat (HOTC:AIM) jumped 9.7% to 422.5p as investors digested a palate-pleasing first half performance and a positive update on the brand’s overseas progress.

The posh chocolates maker also assured the market that further investment into the supply chain is underway, allaying concerns over the inefficiencies that caused some constraints over the peak Christmas and New Year period.

One of Shares’ top picks for 2020, Hotel Chocolat is a cash generative chocolate brand that is going from strength to strength in the UK and overseas. It is just beginning to take a bite out of enormous US and Japanese markets, where Valentine’s Day business was booming.

International expansion is one of the bull points for the stock. So we are encouraged to learn that Hotel Chocolat’s first stores in the US and Japan have both passed their one-year anniversaries and generated modest profits in the second half of calendar 2019.

DOUBLE DIGIT DOMESTIC GROWTH

Hotel Chocolat served up 7% year-on-year growth in first half pre-tax profit to £14.9m on sales up 14% to £91.7m, reflecting the continued appeal of the brand and ongoing product innovation.

Despite subdued consumer confidence, this high-quality company generated a double digit increase in profitability from its UK estate, as consumers gorged themselves on products priced as an affordable luxury.

In addition, Hotel Chocolat’s VIP loyalty scheme continued to grow while sales of its Velvetiser in-home hot chocolate maker shot up more than 200% year-on-year.

As enthusiastic co-founder and chief executive Angus Thirlwell explained, new store openings ‘contributed three percentage points of the growth in the period, with the remaining balance coming from existing locations, digital and wholesale channels’.

While Hotel Chocolat’s new markets in the US and Japan are still in the early stages of development, it says ‘consumer response to the brand is encouraging, sales are growing, and we believe we have a deliverable plan to achieve attractive returns’.

SUPPLY CHAIN REASSURANCE

On 23 January, Hotel Chocolat said supply chain inefficiencies  had increased the cost of delivering its increasingly global growth.

Addressing the issue in today’s results announcement, Thirlwell explained: ‘Our strong growth came from a wider variety of sales channels than in previous years, which led to some initial challenges in our supply chain. We are now making good progress with investments and upgrades in our supply chain which will fully address these inefficiencies and increase our international and multi-channel supply capability, ensuring we continue to deliver profitable growth.’

Liberum Capital described the performance as ‘a very solid’ first half, commenting: ‘Ongoing double-digit sales growth, from a widening range of channels, coupled with underlying gross margin stability is encouraging.

‘Further investment into the supply chain is now underway following some constraints. This is clearly positive in order to be well prepared for calendar year 2020 trading and as a measure of management’s confidence in the global brand opportunity.’

READ MORE ABOUT HOTEL CHOCOLAT HERE

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Issue Date: 25 Feb 2020