Majestic Wine’s pre-tax profits dropped 50% to £4.3m for the half year driven by a series of charges following its acquisition of Naked Wines.
The retailer said non-cash charges, interest costs and exceptional items forced pre-tax profits down and cautioned that full-year profits would be “impacted by the increased investment” in the business as it embarks on a three-year turnaround plan, which is targeting sales of £500m by 2019.
Bosses hailed “encouraging” signs as sales increased 36% to £181.6m in the 26 weeks to September 28. The sales growth was driven by the impact of Naked Wines, the online business acquired by Majestic earlier this year. Excluding Naked Wines, Majestic Wine’s sales grew 6%. Adjusted EBIT was up 12% to £9.5m.
Retail like-for-likes rose 2.3% during the period while commercial business-to-business sales jumped 8%. Sales at specialist fine wine business Lay & Wheeler were up 23%.
Majestic Wine boss Rowan Gormley, the founder of Naked Wines who took the reins following the acquisition in April, has targeted “sustainable, volume-led” growth in his three-year transformation plan.
Following a strategic review, Gormley said “good progress” had been made on the structure of the business and is now focusing on “disciplined investment” to generate better returns on investment.
“We have a clear plan, which will require investment and take three years to complete, but will also deliver a better business that can create sustained growth in shareholder value”
Rowan Gormley, Majestic Wines
His predecessor Steve Lewis had targeted a portfolio of 330 Majestic Wine stores, but Gormley has scaled that back significantly to 230. The retailer said the priority would now be on “new customer recruitment to drive higher returns from the current level of investment spend.”
Growth and expansion
Gormley has also made “reinvigorating sales growth” in Majestic Wine’s stores a key priority. He has already scrapped the six bottle minimum purchase rule as part of plans to adopt a simpler pricing policy and improve the customer experience.
The expansion of Majestic Wine’s business-to-business arm and the growth of Naked Wines in the UK, US and Australia also key parts of Gormley’s strategy.
Gormley said: “Six months in to my new job it is clear to me that we have a solid core business at Majestic, and two great growth engines in Naked Wines and our commercial business.
“We have a clear plan, which will require investment and take three years to complete, but will also deliver a better business that can create sustained growth in shareholder value.
“Fortunately, the board acted decisively and quickly when it became clear that a change of direction was required, so our core competitive strengths are intact and provide a sound foundation to work from.
“As a result, profit for the current year is expected to be impacted by the increased investment derived from our successful test period after which we expect to see sustainable growth as the anticipated returns from our initiatives are realised.”
Majestic Wine also revealed that buying director Justin Apthorp has retired from his role as buying director.
Apthorp, who will continue to serve Majestic Wines in a non-executive role, was a member of the original management team that acquired Wizard Wines from Iceland in 1989 and has held various buying roles within the group, joining the board in 2006.
Majestic Wine chairman Phil Wrigley said: “During his time as buying director Justin has worked tirelessly to deliver wines of superior quality and value to our customers year after year.
“Despite the Majestic business undergoing a period of exciting change across all functions following the acquisition of Naked Wines we intend to continue that legacy and I am pleased that Justin has agreed to continue to provide us with his insight and experience as a non-executive director.
“I’d like to thank Justin for his significant contribution to the business and look forward to that continuing in his role on our board.”