UK shares: should I buy this beaten-down retailer for long-term growth?

Many UK shares have fallen due to macroeconomic headwinds. Could a long-term recovery be on the cards for this beleaguered retailer?

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I believe there could be some UK shares out there trading at rock-bottom prices due to recent market volatility. One stock that has caught my eye recently is Hotel Chocolat (LSE:HOTC). Let’s take a closer look at it to see if I should buy or avoid the shares.

Chocolate retailer

As a quick introduction, Hotel Chocolat is a British-based chocolatier and cocoa grower. It has a retail network in the UK and Japan, as well as an online presence. It is the only UK company that grows cocoa on its own farm.

So what’s happening with Hotel Chocolat shares currently? As I write, they’re trading for 142p, while at this time last year, the stock was trading for 380p. This which equates to a 62% decline over a 12-month period.

To buy or not to buy?

I have compiled a list of pros and cons to help me decide if I should buy Hotel Chocolat shares.

FOR: Hotel Chocolat posted full-year results for the 52-week period ended 26 June 2022. I found them to be positive overall. Revenue increased by 37% compared to 2021, and 60% compared to 2019, which was its last full-year period without pandemic-related disruption. Cash generation was up too, as well as operating profit, falling in line with expectations. In my opinion, it has bounced back well from pandemic woes and can now look towards future growth aspirations, which it pointed to in the update as well.

AGAINST: Since the pandemic, it now has to contend with macroeconomic headwinds. These include soaring inflation, the rising cost of materials, and supply chain constraints. Rising costs can put pressure on profit margins, which underpin returns as well as growth initiatives. Supply chain problems may negatively impact operations such as product availability, which could affect sales and performance too.

FOR: One advantage I believe that Hotel Chocolat has over competitors is the fact it grows cocoa on its own farm in St Lucia. I believe this advantage might help ease supply chain issues for Hotel Chocolat, and possibly give it an advantage over competitors. Supply chain problems are hampering many UK shares and their day-to-day operations.

AGAINST: Earlier this month, Hotel Chocolat announced that it would cease operating its US direct-to-consumer arm, but remain open to wholesale opportunities. In its July update, it said that it would look to focus on low-risk and profitable growth opportunities only. Perhaps the US market does not fall into this category. As a potential investor, seeing the company exiting a lucrative, large market like the US is slightly off-putting.

What I’m doing now

If I had some spare cash, I would be willing to buy Hotel Chocolat shares. Hotel Chocolat’s recent results, its advantage with its own cocoa farm, as well as global profile and presence help me make my decision. I believe the current macroeconomic headwinds will ease eventually. Furthermore, I believe it has a healthy enough balance sheet to help it overcome these obstacles.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Jabran Khan has no position in any of the shares mentioned. The Motley Fool UK has recommended Hotel Chocolat. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

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