Shares in Majestic Wine (WINE) slump 18% to a 12-month low of 305p as the company reports a 62% drop in pre-tax profits for the first half of the year.
The sharp drop in profits comes as Majestic ramps up its investment spend at Naked Wines to increase customer numbers. What it calls ‘new customer investment’ is up 60% on the first half of last year at nearly £8m.
This spending strategy is in line with the company's aim to boost Naked customer numbers and sales growth accelerated in the first half of the year.
Turnover at the unit topped £75m in the first six months meaning it now contributes over a third of group revenues.
It also contributes over 40% of operating profits as it makes a higher margin than the standard retail business but clearly this growth is coming at a cost.
The company plans to continue investing in Naked in the second half as well as spending £5m-£8m on extra inventory as it builds stocks ahead of potential supply chain disruption due to Brexit.
Most of the UK’s wine imports come from the EU and uncertainty over the flow of goods into the country has led many consumer-goods companies to start stock-piling goods in case of a ‘no-deal’ Brexit.
The core retail business saw sales up 2% to £123m which is better than the overall market. Wine sales in general and still wine sales in particular have been declining for the last couple of years.
Also more customers are ordering online and the Wine Concierge client base has almost hit 30,000. This is good repeat business for Majestic and it has decent margins too.
However the up-market Lay & Wheeler business bought back in 2009 is still struggling to turn a profit. Operating income in the first half reached £300,000 which annualised is marginally above the £500,000 reported in 2008.
