Majestic Wine results: 'At a tipping point'

Highlights

Retailer Majestic Wine is ‘at the tipping-point’ after reporting a pre-tax loss of £4.4m in the six months to 26 September despite buoyant sales.

Majestic Wine results

The company, which also owns direct retailer Naked Wines and fine wine business Lay & Wheeler, saw sales rise 13.2% (up 10.6% underlying) to £205.6m in the first half of its financial year.

However, a £0.1m adjusted pre-tax profit was wiped out by £4.5m of adjustments, largely related to the acquisition of Naked Wines in April last year.

Majestic Retail sales rose 5.7% on a like-for-like basis, reaching £117.9m in total; Naked Wines revenues were up 26.7% to £59m; the company’s under-achieving commercial arm posted a 1.2% revenue increase, while Lay & Wheeler sales rose 27.8%.

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Majestic reiterated its target of achieving revenues of £500m by 2019, but chief executive Rowan Gormley admitted that the company was ‘at the tipping-point’ when it came to translating sales growth into profit growth.

The company issued a profit warning in September thanks to its under-performing commercial business and a failed direct mail campaign for Naked Wines in the US.

Gormley said the Naked campaign ‘did not get anything like the results we saw in the testing, so we have bitten the bullet and ceased investment in the programme’.

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He added that the changes needed to improve Majestic’s commercial performance would not be implemented until early 2018 as the company prioritised other areas of the business.

Majestic is one year into a three-year transformation plan. ‘We said that we would deliver sustainable growth, not by opening more stores, but by investing in better customer service and better customer retention,’ said Gormley.

‘Both of these are working … We are reiterating our commitment to hitting our goal of delivering £500m sales by 2019, and we believe that will translate into healthy profit growth now that the step change in investment is complete.’

David Stoddart, analyst at Edison Investment Research said: ‘After a difficult H1 in which it eked out an underlying PBT of £0.1m but a statutory loss of £4.4m, Majestic is confident that its step change in fixed costs is complete and that sales growth will translate into extra profit.

‘It has learned the lessons of H1, remains confident of its £500m FY19 annual sales target and has restored the interim dividend as a mark of that confidence. Investors could be forgiven for being just a tad less confident and waiting for evidence before popping corks.’