Majestic Wine confident of continued sales growth in challenging market

Majestic Wine delivered a bullish assessment of its chances of thriving in a challenging UK market after reporting 2.3% revenue growth for the year to April 2018.

Its Naked Wines division was the driving force behind the growth, as sales climbed 11.3%, and overall profit before tax was £8.3 million, compared to a £1.5 million loss last year. 

However, profitability at its Majestic retail arm was broadly flat, and chairman Greg Hodder said short-term profits may be more “volatile” amid consumer spending pressure, rising costs and fierce competition.

But chief executive Rowan Gormley added: “If the UK is headed for a retail crisis, as some commentators are suggesting, then we are planning for a great crisis. We founded Naked Wines during the financial crisis of 2008 and proved that investing in acquiring customers and generating loyalty through great products and service, will drive profitable growth even in a tough market.”

Overall revenue hit £476 million in the year to April 2018, and Gormley said the group remains on target to hit its goal of achieving £500 million in sales by 2019.

“Looking forward, we expect the UK market to remain tough, possibly even tougher than last year,” he said. “Certainly trading since year end has been harder than the prior year in the UK.

“Despite this, we expect to hit FY19 market expectations. because unlike many retailers we are able to generate growth through profitable customer acquisition, even in tough markets ; 20% of our business takes place in the growth markets of the USA and Australia; 45% of Group sales are online ; and we have already, or will shortly, complete projects that eliminate unproductive work, freeing up our people to engage with customers and allowing us to reduce cost.”

Majestic reported that the UK’s thirst for wine from less traditional regions is growing. Sales from Hungary grew 600% at the retailer while Bulgarian wines were up 22%. It also enjoyed 98% sales growth in Aperol, claiming that Brits are starting to drink Prosecco “the Italian way”, in spritzes.

But it warned of a pale rosé drought due to a poor harvest in 2017 and rising demand, so it warned consumers to diversify their buying habits and perhaps take another look at darker hued rosé in order to avoid disappointment.

Fiona Cincotta, senior market analyst at City Index, said: “Profit is bang in line with expectations and the company has rewarded investors with a hefty increase in the dividend. But by the sounds of the outlook statement, the bigger dividend could be akin to a stiff drink, offered to help prepare for a rockier year ahead.

“Trading conditions this year have deteriorated and management has even mentioned the words ‘retail crisis’.  At the same time, Majestic Wine recently forecast heavier investment spending to boost its online offering.

“Combining higher costs with increasing pressure on revenue can be a noxious cocktail for share prices, especially in the short term. But management clearly thinks they're onto something good with their new retail strategy -- evidenced by the excellent online sales performance at Naked Wines. Today's result could be offering investors a taste of what’s to come, if they're patient.”

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