Profits fall at Majestic Wine

Profits dropped by 22.5% in the year to March 30 at Majestic Wine after it purchased Naked Wines and replaced chief executive Steve Lewis with Naked founder Rowan Gormley.

Majestic said administrative costs of £18.5 million that arose from the purchase of Naked, which included a £700,000 pay off for Lewis, hampered profits.

It said profit margins also dropped by 0.3%, while distribution costs climbed by £1.5 million to £28.3 million.

But Gormley, who has been chief executive for 10 weeks, said Majestic has “excellent future prospects” despite falling earnings.

He will lay out his plans for the group in September, when it publishes its interim results. But he said: “I have only been group chief executive for 10 weeks but it is clear to me that the enlarged Majestic Group has excellent future prospects.

“Majestic Wine has many unique competitive advantages, especially its incredible staff.

“When combined with Naked Wine’s digital strengths, and both businesses’ ability to source exclusive and exciting wines for their customers, we are uniquely placed to build a fast growing international leading wine specialist.

“While my review of the business is ongoing it is obvious that we need to make investments to reinvigorate Majestic Wine.

“These investments will initially suppress profit in the short term but I am confident we can rebuild momentum in this excellent business.

“At the same time we aim to maintain the international growth trajectory of Naked Wine and crystallise the benefits of having the two businesses in the same group.

“I am confident that we will create significant value for our shareholders over the medium term.”

Investec analyst Alistair Davies agreed that the group has a bright future. He said: “Profits will be held back short term as management test a number of initiatives and take learnings to finesse its future investment plans. We remain excited about the Naked Wines business and see the longer-term growth potential of enlarged group as being undervalued.”

But analysts at Charles Stanley were disappointed by the lack of detail in the report, adding: “We note that the new chief executive is looking to make quick and decisive actions in a number of other areas to put Majestic on the right trajectory for renewed success.

“Having said that, we still believe that the transformation of Majestic will likely be a highly complex endeavour.

“In that respect, we are disappointed that the results contain no meaningful discussion of synergies between Majestic and Naked Wines in areas such as logistics and sourcing.”

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