Majestic retail sales rise as chairman bids farewell
Majestic has reported 5.7% like-for-like sales growth in its retail outlets and chief executive Rowan Gormley declared the business is now “past the tipping point”.
Overall the group posted a pre-tax loss of £1.5 million for the 2016/17 financial year, compared with a profit of £4.7 million the previous year.
Underlying profits also fell 29% to £12.9 million in the 53 weeks to April 3, and this was all attributed to surging costs incurred in overhauling the business, or “acquisition related non-cash charges”.
“Our full year reported loss of £1.5m reflects the on-going expensing of non-cash share based payment charges and intangible assets that arose from the acquisition of Naked Wines,” said Gormley.
But he is pleased by the performance of its 210-strong retail estate, marking eight consecutive quarters of like-for-like growth, and turnover is now £258.5 million in this section of the business. Gross margin was down 0.7% in the retail division, which was blamed on “Brexit related currency impacts”.
Naked Wines grew sales 26.3% to £142.2 million, with the US business driving the growth. Gross profit rose £39.6 million the previous year to £48.2 million in 2016/17, despite a failed direct marketing email campaign
It admitted its commercial arm has suffered “a disappointing year” as earnings before debit and interest dropped 36.5%, so it has restructured this part of the business.
But it said the new team at Lay & Wheeler, its fine wine arm selling to high net worth customers, has turned things around, growing sales by 36.2% and returning the division to EBIT growth.
Overall sales were up 15.8% over the 53 weeks, and despite the dip in profits Gormley was bullish about the results.
“We are past the tipping point, both financially and operationally,” he said. “Financially, adjusted EBIT in the second half of the year is up 51% on prior year. “Operationally, we are through the most risky and cost intensive phase of our transformation plan. Together these mean we have a business that is better able to weather the uncertain trading environment, with a sustainable growth model, the big strategic questions answered, a better paid and rewarded workforce and more effective systems and processes.
“We remain confident about the medium term outlook, despite tough economic conditions, as transformation benefits are coming through and our costs are naturally coming down as a result of us reaching the next stage of the transformation plan. We are therefore reiterating our £500m sales goal by 2019 and affirming current analyst profit expectations.”
Chairman Phil Wrigley is standing down, to be replaced by former Laithwaites chief executive Greg Hodder, who has been a non-executive director at Majestic since 2015.
Wrigley said: “It has been a privilege for me to be a part of such an important time in Majestic’s history. I thank all of the wonderful colleagues I have worked with over the years for their hard work, support and dedication and I wish everyone great success for the future. May the wine flow.”
He added: “I commend Rowan and the whole of his executive team for their commitment to this transformation, the scope and volume of projects they have implemented is testament to their skill and determination.
“We are committed to achieving £500 million in sales by 2019 and delivering analyst profit expectations. The wine market in the UK is incredibly competitive but we are continuing to grow our customer base whilst doing the heavy lifting as part of our transformation plan.”
Gormley thanked Wrigley for his “enormous contribution” to building a solid future for the company. “He has brought a huge dose of wisdom, decades of retail experience and an acute insight into people, all combined with a wicked sense of humour and warm personality,” said Gormley. “He will be greatly missed, and we wish him all the best in a well-earned retirement.”
Gormley added: “We are in much better shape than we were two years ago – and we need to be, because UK retail is likely to be in for a rough ride, with downward pressure on demand, due to falling household incomes and upward pressure on prices. “However, it is not all doom and gloom. We are moving into a lower risk and lower investment phase of our transformation plan, which means that despite anticipating tougher times ahead, we feel able to reiterate our sales target of £500 million in 2019 and affirm current profit expectations.
“Of course, this guidance assumes that there is no further deterioration in trading conditions and no exceptional fallout from Brexit. I wish I had a crystal ball to predict what the outcome might be, but in the absence of that, all we can do is stick to our transformation plan.”
He was disappointed by margins this past financial year, plus the performance of the commercial division and Naked Wines USA, and another frustration was Majestic’s inability to keep hold of staff.
To counter this, it is testing a new partnership programme where store managers are “given a chance to literally run their own shop”.
“Managers will be able to earn a percentage of their store’s contribution by having more control over the day to day running of their own store,” said Gormley.