Profits moved higher at Majestic Wine (MJW:AIM), the UK's biggest wine specialist, despite a reduction in sales. This wasn't enough to boost the shares which fell 1.75p to 453p as investors focussed on news of a slow start to its new financial year.
The wine merchant saw a 2.1% drop in revenue to £274.4 million in the year to 1 April, reflecting a previously-flagged withdrawal from some low margin wholesale activity and comparison with a 53-week year last time around.
Yet underlying sales (stripping out wholesale) were up 2.6% to £268.6 million. UK like-for-like sales edged ahead by 1% while pre-tax profits increased 2.1% to £23.7 million, in line with consensus. Cash-generative Majestic also raised the total dividend 1.3% to 15.8p.
The Watford-headquartered firm's new fiscal year is off to slow start, reflecting unseasonable weather, the timing of Easter and a demanding comparative period given a boost to last year's numbers from the Diamond Jubilee.
Lively chief executive officer Steve Lewis says Majestic has it all to play for over the summer, when parties, weddings and events get into full swing. He highlights positive progress with the four pillars of the retailer's growth strategy: new stores, business customers, e-commerce and fine wine.
Store numbers grew from 178 to 193 last year and Majestic is targeting a further 16 new openings this year as it expands to a targeted 330 UK outlets.
Online sales rose 14.7% to £26.1 million to represent 11.1% of UK retail sales, with the reduction in the minimum threshold for free delivery from 12 to six bottles proving beneficial by widening Majestic's demographic appeal.
Commercial sales to gastropubs, restaurants and hotels increased 13.6% to £30.9 million while sales, of fine wine (priced at £20 and above) showed impressive growth of 9.4%.
Majestic's competitive advantages include a strong focus on customer service delivered by highly-trained graduate employees as well as free tasting available seven days a week.
Stockbroker Panmure Gordon is upbeat, saying: 'We believe that Majestic has significant market share opportunity as it builds on its position as the UK's pre-eminent specialist wine retailer. We see many years of highly visible profit growth and we therefore remain buyers, with a target price of 500p.'
Espirito Santo's Sanjay Vidyarthi forecasts profits of £25.6 million and earnings of 29.2p for the current year, although he is sticking with his 'neutral' rating and has a 450p fair value estimate. The analyst says: 'Majestic has a strong business model and excellent long-term growth prospects. However, it does not feel like the volatility in trading seen in FY13 is going to change any time soon. With the shares trading on a calendar 2014E P/E of 14.7x, the shares are not cheap, in our view.'