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Majestic Wine swings into the red

Majestic Wine swings into the red

These numbers from Majestic Wine (WINE) suggest there's some way to go before the Alternative Investment Market (Aim)-traded retailer puts last year's profit warning behind it. But there are signs of progress. Active customer numbers (repeat Majestic customers and Naked Wines subscribers) rose 12 per cent; nearly a fifth of sales are now derived from international markets; and Naked Wines now generates more than 70 per cent of forecast profit growth. But the company still registered an overall pre-tax loss of £1.5m last year as a result of acquisition and restructuring-linked charges following the Naked Wines deal.

The second half of the year was far stronger: operating profits grew by 51 per cent year on year, while return on investment on new customers acquired by Naked Wines rose by 139 per cent, according to broker Liberum. It was the attempt to recruit new customers in the US by Naked Wines that had previously failed miserably. A direct mail campaign was aimed at improving the rate of new customer recruitment, which ultimately didn't happen. This resulted in a high level of marketing costs, helping to force the group into the red.

Chief financial officer James Crawford is sanguine in retrospect. Yes, the mail campaign didn't achieve its principal aim, he admits, but the business didn't actually lose customers as a result. It did manage to recruit some new punters, just not at the rate expected.

The market may be more concerned about Majestic's fortunes on home soil this year as price inflation and wider economic uncertainty squeeze consumer spending. But is blaming the recent political turmoil fair? Mr Crawford says as far as profits go, yes, but the top line is a different story: "Wine is an everyday product," he says. "We'd need economic Armageddon for people to stop buying it altogether." Should a downturn occur, Mr Crawford is confident wine would remain "a small luxury" for people cutting back on dining out. But the company is still forecasting sales growth to slow from double-digits to low-to-mid single digits in the year ending March 2018.

Analysts at Liberum expect pre-tax profits of £16.7m in FY2018, giving EPS of 17.1p, up from £12.9m and 16.3p in FY2017.

MAJESTIC WINE (WINE)
ORD PRICE:374pMARKET VALUE:£266m
TOUCH:374-377p12-MONTH HIGH:477pLOW: 273p
DIVIDEND YIELD:1.4%PE RATIO:na
NET ASSET VALUE:161p*NET DEBT:22%

Year to 3 AprTurnover (£m)Pre-tax profit (£m)Earnings per share (p)Dividend per share (p)
201327423.726.915.8
201427823.827.016.0
201528418.420.54.2
20164024.73.5nil
2017465-1.5-4.15.1
% change+16-131-217-

Ex-div: 22 Jun

Payment: 28 Jul

*Includes intangible assets of £51m, or 72p a share

IC VIEW:

Profitability should recover this year - especially as several sets of dual-running costs come to an end. A better second half should inspire more confidence, but the shares' toppy 22 times forward earnings rating suggests any long-term recovery potential is priced in. Hold.

Last IC View: Sell, 316p, 18 Nov 2016

visible-status-Standard story-url-Majestic Wine_FYresults_15_6_17.xml

By Harriet Russell,
15 June 2017

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