Japanese business pushes Hotel Chocolat to a loss

Hotel Chocolat’s return from the lows of the pandemic was hampered by the close collapse of its Japanese business over the last financial year – but closer to home sales remained strong.

The chocolate retailer said it was asking what could have been done differently as it wrote off around £22 million from the Japanese joint venture set up in 2018.

It came as the business swung to a pre-tax loss of £9.4 million in the year to late June, down from a £3.7 million profit a year earlier.

The business said without the Japanese impairments, and other one-off charges, its pre-tax profit reached £21.7 million.

The problems in Japan have not been entirely Hotel Chocolat’s making. As with its UK shops, the pandemic started to severely impact on sales during the “critical” spring period in 2020.

Naturally, sales per store dropped – as did profit margins.

But the retailer said its Japanese business was weighed down compared to the UK, where it had a more developed online store, which could pick up some of the slack.

Then, when 2022 hit, the business hoped Covid would not be “a major impediment to sales”.

In the UK, this proved true – sales were up 23% in the year to late June – but in Japan, the Government reinstated movement restriction guidance.

It led to the third year in a row that sales and profitability were low. When the bosses of the joint venture told Hotel Chocolat how much money they would need to keep going in 2023, the company said it was an inappropriate amount.

The Japanese business is now restructuring while it tries to find different sources of funding. It still trades for now.

“As can be imagined, we have asked ourselves many questions as to how we could have done this differently,” the business said on Thursday.

“The size of the prize in Japan certainly sustained our risk appetite through the three increasingly difficult years of Covid, alongside the loyal enthusiasm of our Japanese fans for all things Hotel Chocolat.”

Overall, the business reported a big jump in revenue to shareholders on Thursday, from £165 million to £226 million.

Chief executive Angus Thirlwell said: “The Hotel Chocolat 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.”