Naked Wines owner Majestic Wine ‘at tipping point’ despite £4.4m losses
PUBLISHED: 10:38 17 November 2016 | UPDATED: 16:52 17 November 2016
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Majestic Wine swung into the red with half-year losses of £4.4m, but said it was at a “tipping point” in its return to profit growth.
The warehouse wine retailer first issued a profit warning in September after taking a hit from a failed marketing campaign for its Naked Wines business in America and weak sales to business customers.
The £4.4m loss for the six months to September 26 compares with a bottom-line pre-tax profit of £4.3m a year earlier.
But Majestic Wine cheered a 10.6% rise in underlying sales growth at £205.6m.
Chief executive Rowan Gormley sought to reassure investors that the company was heading for growth.
‘Heading in the right direction’
Speaking on BBC Radio 4’s Today programme Majestic Wines chief executive Rowan Gormley said the company was on track with its plan.
He said: “Sales are up and profits are down. Profits are down because we are investing in growth and it is working.
“We are one year into a three-year plan. The plan was to restore Majestic to growth by improving the proposition and improving customer loyalty rather than opening some new stores. That is, we believe, sustainable and that is what makes the increase in costs and investment rather than poor control of costs.”
He added: “The key thing to ask is ‘is the sales growth sustainable?’ because if it is and the fixed costs are fixed then in time the sales growth will translate in to profit. We believe the sales growth is sustainable because the customer base is growing, because customer retention is growing, because all of our key performance indicators are heading in the right direction.”
Mr Gormley founded Norwich-based Naked Wines and took up his role with Majestic when they bought his business.
He said: “We are at the tipping point.
“From now on we are confident that future sales growth will translate to profit growth, because the step-change in fixed-cost growth is complete (and) we are aiming for, and look like we are achieving, sustainable sales growth.”
He added that the company has reinstated its dividend at 1.5p per share and is on track to notch up £500m sales by 2019.
The company has embarked on a three-year turnaround plan aimed at expanding and retaining its customer base, slowing down branch network expansion, and acquiring new customers for Naked Wines.
It has seen Majestic spend more money on media, staff training, and its IT and digital marketing teams.
Despite setbacks, the firm said it intends to stick to plans to invest in growing Naked Wines and transforming its retail business.
Mr Gormley said: “Our plan is working. We said that we would deliver sustainable growth, not by opening more stores, but by investing in better customer service and better customer retention.”
Neil Wilson, a markets analyst at ETX Capital, warned that Majestic needs to get profits on track quickly.
He said: “Chief executive Rowan Gormley may insist that the plan is working ... but this massive growth splurge has to turn into sustainable profits soon.”