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Majestic Wine shares dive after warning over profits

Published 21/09/2016

Majestic Wine is reviewing its commercial division after seeing sales flat-line and pressure on profit margins
Majestic Wine is reviewing its commercial division after seeing sales flat-line and pressure on profit margins

Majestic Wine saw around a quarter of its stock market value wiped off after warning over profits.

The wine warehouse retailer alerted over full-year earnings after taking a hit from a failed marketing campaign for its Naked Wines business in America and weak sales to business customers.

Majestic Wine said it is reviewing its commercial arm, which supplies wine to businesses, after seeing sales growth flat-line and profit margins come under pressure as the first half of the year proved "even more challenging".

Earnings in the division could be around £2 million lower than expected, Majestic cautioned.

The group's woes have been compounded by a botched direct mail marketing campaign in the US for Naked Wines - the online business it bought in April last year for £70 million.

It has now shelved the direct mail campaign, but it has resulted in higher costs and fewer new customers than hoped.

Majestic said Naked Wines is set to suffer a small annual loss, slipping back into the red after making a surprise maiden profit in the last financial year.

The issues at both divisions are also set to see overall group earnings for the year to April 3 2017 come in lower than City expectations, it said.

Shares tumbled by as much as 33% at one stage, before settling around 25% lower.

Rowan Gormley, chief executive of Majestic Wine, said: " It is very disappointing that two isolated factors are distracting from the great progress across the rest of the group."

Mr Gormley insisted his turnaround was bearing fruit in the retail arm, which enjoyed its first rise in like-for-like sales in four years for the 12 months to March 28.

He added the group remains on track to notch up £500 million sales by 2019 and sought to assure investors Majestic is still aiming to resume shareholder dividend payouts this year.

Majestic Wine has 210 warehouses across the UK as well as two branches in France, while Naked Wines operates across Britain, the US and Australia.

It also owns specialist fine wine business Lay and Wheeler, which recently returned to growth, according to Mr Gormley.

Analysts at Peel Hunt said there are signs of "fundamental problems" in Majestic's commercial division.

But they added: "We remain very excited by the prospects of Naked Wines and whilst the US issue is unfortunate, we would not class it as careless or fundamental and see material growth from Naked over time."

Mr Gormley was appointed chief executive last year shortly after Majestic bought Naked Wines, which he founded.

He replaced Steve Lewis, who left the retailer in February 2015 after poor sales as the business faced increasing competition from supermarket rivals.

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