Wine specialist Majestic Wine (WINE:AIM) fizzes 6.9% higher to 467.75p on better-than-expected full-year results, that clearly demonstrate the three-year turnaround strategy set out by CEO Rowan Gormley (pictured below) in November is on track.
UK wine market conditions are tough and are expected to stay that way amid fierce competition from supermarkets including the discounters, yet Majestic Wine's recovery is showing encouraging early signs and the specialist retailer expresses confidence in achieving its goal of generating £500 million in sales by 2019.
Click here to read today's statement from the UK's largest specialist wine retailer, which completed the £70 million, transformational acquisition of Naked Wines last year (10 Apr). The takeover of the disruptive online wine business, the key engine of sales growth for Majestic going forwards, brought Naked Wines founder and wine industry innovator Gormley into the hot seat of the enlarged group.
Though Majestic Wine's adjusted pre-tax profit was down 11.9% to £15 million on a pro forma basis for the year ended 28 March, this reflects the increased costs of Gormley's plan to return the original businesses to growth and drive further strong growth at Naked Wines and Majestic's Commercial division.
Encouragingly, the Majestic Wine business saw positive like-for-like sales growth for the first time in four years. Same-store sales grew 4.8%, reflecting investments in improving the shopping experience, simplifying pricing by removing the six bottle minimum purchase and refining the range.
Meanwhile Naked Wines, which funds independent winemakers to make exclusive wines at preferential prices which are then passed onto customers, delivered record sales, up 27.3% to £104.3 million, driven by strong growth in the US.
Besides exceeding the £100 million milestone for the first time, Naked Wines, a beneficiary of channel shift online offering exciting global growth possibilities, also delivered a maiden full-year profit.
'We have to admit we weren't planning to have made a profit this year,' says Gormley. 'This is a sign that we have not invested as strongly as we should have (particularly in the USA where we had less inventory than we needed during the year). Our goal is to keep finding opportunities to invest in and so we plan to increase our growth spend in the business this year.'
Since the turnaround is still in its infancy, there's no dividend for the year just-ended, Gormley arguing shareholder interests are best served by investing in the business and deleveraging the balance sheet post-Naked Wines.
But the good news is Majestic Wine will return to the dividend trail at the interim stage, the retailer today announcing a new dividend policy to pay out 35% of annual adjusted earnings. Majestic also flags the potential for special dividends in future years, 'if excess cash is available based on foreseeable investment opportunities'.
Reassuringly, Majestic Wine generated healthy free cashflow of £13.8 million last year and year-end net debt of £25.5 million came in lower than expected.