Majestic: ‘encouraging’ results but profits hit by Naked acquisition

Majestic Wine has reported “encouraging” results after seeing its first positive performance in four years, but admits there is more to be done.

The new CEO of Majestic Wine, Rowan Gormley, in Majestic’s Mayfair store

The company reported group sales up 41.3% to £402.1m, but profits were hit by last year’s acquisition of Naked Wines, which reduced the profit before tax74.5%, from £18.4m to £4.7m, largely because of an £11.5m non-cash charge associated with the acquisition.

However group chief executive Rowan Gormley said the results demonstrated early progress in the three-year turnaround plan, announced in November, with like-for-likes at Majestic Retail up 4.8%, from 0.1% last year, on the back of a return to “retail basics”, including improving the pricing proposition and scrapping the six bottle minimum, refining the range, boosting employee engagement and improving both the shopping experience for customers by remerchandising and making it easier for store teams to focus on customers, as revealed by db last week. Underlying sales rose 5.8%, with older stores contributing strongly to growth.

Gormley said the company had made a good start and had a solid foundation to work on, but it was “just the first step”, with further supply chain improvements and the implementation of a new multi-channel platform for Majestic Retail.

“Early signs are that the plan is starting to work,” he said. “I am delighted with our new team and the progress they have made. However this is the start of a three year plan, all our big projects are at a very early stage and we still have a long way to go before we see their full effects.”

Active customer numbers at Majestic retail had grown 12% to 775,000, and he noted that “customer loyalty is the engine that drives sustainable growth”.

However he cautioned that trading was still tough in the UK and currency volatile was likely to push up the cost of goods, although the group was committed to delivering £500m of sales by 2019.

Overall group revenue rose 41.3% to £402.1m, although CFO James Crawford pointed out it had benefited from two Easter holiday periods calling within the financial year. Around £4.1m has been invested across the retail and commercial business in the course of 2016, he also noted.

Naked Wines had “a belter of a year”, Gormley said, with record sales, up 27.3% to £104.3m – the first time it has exceeded £100m – driven by strong growth in the USA and a focus on customer retention.  Global angel numbers grew to over 300k, and EBIT was reported at £1m, ahead of expectations – the company admitted it had not intended to make a profit this year, and it had not invested as strongly as it should have – but profit before tax was 30.3% lower year-on-year, due to acquisition costs and ongoing investment.

“Our goal is to keep finding opportunities to invest in and so we plan to increase our growth spend in the business this year,” Gormley said.

Commercial grew at 7.9%, ahead of the market, with 1,400 new accounts opened, but Majestic said it “could have done better” as adjusted EBIT rose just 1%. The commercial business needed the structure behind it for growth, including a rebuilt supply chain and better IT, it said.

Meanwhile fine wine division Lay & Wheeler is also set to undergo strategic “reconfiguring”, as the group determined it was too dependent on the uncertain en primeur market. Despite a “marginally” profitable year, the majority of its profit  came from cellarage it noted.

“The market in which it operates has fundamentally change and innovation is require for the division to deliver its potential,” Gormley said. “We have a plan in place to reposition L&W in a more sustainable and predictable market, but are still in very early stage on how this will work in practice.”

Net debt at the group stood at £25.2m.