Majestic at ‘tipping point’ of returning to profit

Majestic has reinstated its dividend as a sign of confidence in its ability to deliver its £500m annual sales goal within three years – claiming to be at the tipping point of returning to profit.

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

The specialist wine retailer this morning reported solid sales growth in the first half of the year, arguing that it was on the ‘tipping point’ of transforming its £4.4 million loss back into profit.

“It is too early to draw conclusions, but we are seeing encouraging signs,” CEO Rowan Gormley said, noting that the “step change” in fixed cost growth was now complete.

Sales across the group grew 13.2% on a reported basis in the six months to 26 September 2016, with its retail arm showing a sixth consecutive quarter of positive growth. Revenue rose to £205.6 million, leading the retailer to announce expectations of between £430.6 million and £443.4 million for the full financial year, with profit before tax now set at  £11.9 million and £12.4 million.

This expectation had already been lowered by around £4 million in September, on the back of poorer than expected sales of its US Naked Wines operation, and a disappointing performance of its commercial division, which is subject to an internal review. Furthermore, profits before tax still reflected the April 2015 acquisition of Naked Wines, it noted.

Like-for-likes at Majestic Retail, the company’s largest division, grew 5.7% with revenues up 5% to £117.9 million. This came on the back of rising customer numbers, it said, which grew 9.1% to 820,000 following a sustained £6.2 million investment in its customer base, along with a further £4.5 million to boost its IT system and digital marketing.

Online sister company Naked Wines also saw growth, up 26.7% to £59.0m, despite the failure of a US mailing programme that was intended to accelerate growth of customer numbers. The team admitted it should have been more cautious, but said the setback had not impacted growth expectations in the US. “Our other new customer acquisition activities continue to deliver attractive ROIs and have room for growth,” it said.

Majestic Commercial, whose poor performance was partly responsible for the profit warning in September, slowed to only 1.2% growth, down from positive double digit growth in previous years. The company is planning an overhaul in 2018 following an internal review but in the meantime it has slashed its growth ambitions and is simplifying the operation to look after existing customers rather than growing the customer base. “Once we are in a position to make the changes Commercial needs, we will look again at driving for growth in the commercial market,” it added.

Meanwhile its fine wine business Lay & Wheeler was back in profit, growing 27.8% to £7 million, which follows a change in the management team and greater investment in the sales and marketing division. Katy Anderson joined the team as md in January, supported by David Payne as head of sales a few months later.

Gormley insisted that the retailer’s plan to grow the business by growing its customer base through improved service and retention rather than the store estate was working.

“Sales are up over 10% and the projects driving that sales growth, like nationwide next day delivery, are on time and on budget,” he said. “Now that we have built a solid platform for future growth, future cost growth will be much lower.

He reiterated the commitment to the ambitious £500m sales target by 2019, commenting: “We believe that will translate into healthy profit growth now that the step change in investment is complete.”

“We are reinstating the dividend as a signal of our continued confidence in the plan.”