At times it seemed that chocolate maker and retailer Hotel Chocolat (LON:HOTC) could do no wrong. That has changed as slowing growth in the second quarter has led to a downgrade, albeit small.
Given the high rating enjoyed by Hotel Chocolat it is impressive that the share price has held up so well, falling 12.5p to 415p. There is normally a disproportionate reaction to a downgrade. However, it is in the minority of AIM company share prices that are lower now than at the time of the General Election.
Peel Hunt has trimmed its pre-tax profit forecast by £500,000 to £14.5m. The shares are still trading on 40 times those downgraded earnings.
The downgrade was sparked by the fact that first half like-for-like growth was 11%, compared with 15% for the first quarter. Management thought the business would grow by more than 8% in the second quarter.
Total revenues were 14% ahead in the first half. Nine new stores were opened in the UK in the period. There were also openings in the US and Japan. Vegan milk chocolate Nutmilk was launched in the period.
Retail store sales remain strong and it appears to have been online where the growth slowed.
The interims will be published on 25 February.
Hotel Chocolat has had mixed results with its international expansion over the years. The differences in individual markets causes some problems. The US shoppers like large gift boxes while the Japanese prefer small ones. Sales were in line with expectations, but margins were lower.
The downgrade has been sparked by these lower margins rather than any concern about sales growth.
The international business is a big part of the growth story and it is important that management gets that right if the share price is going to maintain its high rating.