Retailer Majestic Wine (MJW:AIM) warns disappointing sales and investment spend will put the dampeners on profits for this year and next. Shares in the UK's largest wine specialist fall almost 20% to 408.75p as analysts downgrade estimates.
In an unscheduled trading statement, the wine warehouse chain warns both taxable profits and like-for-like sales will be flat for the year to March. Consensus anticipated £25 million profits before the announcement and analysts are now paring profits estimates to last year's £23.7 million levels in response. One of the retail sector's select structural growth stories, Majestic flags a slowdown in the New Year following a solid Christmas during which same-store sales grew 2.8%.
N+1 Singer believes consumers haven't responded to Majestic's offers and promotions year-to-date, though the retailer has at least maintained its 4.1% share of a more testing market according to the latest data from Nielsen. The broker also notes the absence of Easter trading in the current financial year leaves Majestic up against tough comparatives over the final two weeks, another contributor to likely flat like-for-likes.
On top of recent trickier trading, the Aim dividend-payer guides towards 'a flatter profit growth profile' next year too. Chief executive Steve Lewis (pictured below), targeting growth from 206 to more than 300 UK stores and with plans to expand the growing online business, has decided to step up infrastructure investment to underpin long-term growth. Absorbing the costs of investments in new office space, a new distribution facility and e-commerce and commercial sales teams, as well as in staff training – top-notch customer service is a key competitive advantage – will curtail profits progress in the year to March 2015.
Investec Securities' Kate Calvert has placed her target price and recommendation under review. 'This is a disappointing set back from what is a well-run, highly cash generative company', says the retail scribe, though she adds 'its growth opportunities remain unchanged, driven by the store roll out programme, online and its commercial business.'
N+1 Singer has placed its price target, forecasts and recommendation under review, stating 'today’s news comes as a clear disappointment after the robust performance over peak and the shares will come under a lot of pressure in light of the expected downgrades.'
Sounding a more positive note is Panmure Gordon, which writes: 'The stock retains attractive long-term growth characteristics and we are inclined to view this as a blip – notwithstanding the need to invest in some of the older stores – and we reiterate our buy recommendation but reduce our target price from 635p to 550p.'