Majestic Wine reported a 14.5% uplift in pre-tax profit today while increasing its target for store numbers by 100 to 330 stores. The City reacted favourably.
“Good figures, driven by strong volume growth in active customers, transactions and average spend. These increased by 11%, 1.6% and 5.8% respectively. While there may be some focus on current trading, we view it as satisfactory, given the awful April trading period and the ‘like-with-like’ comparisons with ‘events’. Looking forward, we think that the decision to reduce the minimum purchase requirement from 12 bottles to 6 was genius. At a time when the UK consumer is both watching their pennies and prepared to spend on quality product, this move significantly increases Majestic’s target market. The reduction in purchasing requirement widens Majestic’s demographic appeal and management has therefore been able to increase its targeted number of stores from 220 to 330, compared with a current store base of 177. We expect this to be reflected in a higher, more sustained level of sales growth.” – Philip Dorgan, Panmure Gordon
“Current trade shows LFL sales up 0.6% in the 10wks to 11 June. This is up against a tough Royal Wedding/bank holiday comparative. Our understanding is that trading conditions have remained volatile and event driven. While sales were strong in the run-up to the Jubilee, there was a reversal the week after due to a high level of returns from rained-off events. The comparatives ease over the summer.” – Sanjay Vidyarthi, Espirito Santo
“Over the year 16 stores were opened bringing the UK portfolio to 178. A further 3 stores have opened since the year end and management reiterate their belief there is scope to expand the store estate to at least 330 stores, giving several more years of physical expansion growth. The movement in the minimum purchase requirement of 6 from 12 bottles back in 2009 has proven successful and has recently been extended online. This should further widen the appeal of the Majestic offer.” - Mark Photiades, Singer Capital
“While Christmas remains the key trading period for Majestic, we feel it prudent to reduce our full year 2013 like-for-like assumption to 1.5%. Combined with the pull forward of some en primeur profit into FY12 and the incremental cost of the current national test of a multimedia campaign to increase Majestic’s brand awareness, this sees our 2012 pre-tax forecast reduced by £1.5m (5.8%) to £24.5m, with a similar cut in 2014. Majestic remains one of the few organic roll-out stories in the sector, with a target of 330 stores compared to the current 181 store base, opening around 16 per annum.” – David Jeary, Investec