- Chocolate maker warns of ‘marginal’ loss
- Downgrades guidance for full year 2024
- Insists cash generation remains ‘healthy’
Hotel Chocolat’s (HOTC:AIM) shares slumped 12.5% to 122p after the premium British chocolate maker delivered its second profit warning in two months against a sour backdrop of weak consumer confidence and inflation in wage and cocoa costs.
In a damaging update, the posh chocolates brand reminded investors that full year 2023 is one of transition to re-shape the business for its next stage of growth.
But while ‘excellent’ progress has been achieved in cutting costs, efficiencies are coming through slower than initially anticipated.
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As a result, although sales are in line with the £201.8 million called for by consensus, Hotel Chocolat now expects to deliver an underlying ‘marginal’ loss before tax for the year to June 2023, rather than the £300,000 profit the market was looking for.
PROFITS MELT AWAY
Hotel Chocolat also warned sales and underlying pre-tax profit for full year 2024 will be lower than expected market expectations due to ‘ongoing weakness in consumer sentiment’, exacerbated by rising interest rates, and ongoing inflationary pressures.
WARNING SIGNS WERE THERE
In its earlier profit warning in April, the chocolates seller said sales over the seasonally-important Easter period proved lower than expected due to some gaps in the product range.
Further downgrades from Hotel Chocolat were anticipated by the market judging by the downwards drift in the share price since the company reported a plunge in first half profits in March.
At the time, the chocolatier said it was ‘cautious’ about consumer spending ahead of the seasonally important Mother’s Day, Easter, Eid and Father’s Day events.
The reassuring news for investors hoping the company can overcome its growing pains and turn things round is that Hotel Chocolat continues to generate cash.
In fact, cash at hand is £19 million and there is zero debt on the balance sheet.
BROKER REACTION
Following today’s warning, Liberum slashed its price target from 300p to 190p but is sticking with its ‘buy’ rating on the stock, ‘purely reflecting how far the shares have fallen, that more than bake in the latest round of cuts’.
However, the broker fully appreciates that ‘delivery of the strategy is what matters most and positive earnings momentum to convince investors to buy into the shares.’
Liberum added: ‘Unsurprisingly a new finance director, and chairman are bringing a more prudent approach to forecasts and whilst this does represent another disappointing downgrade, we are hopeful that this may set the group on an “under-promise and over-deliver” strategy. That said, it is now all in the delivery.’
