Drinkers raise their glasses
Investors toasted the online wine purveyor’s ‘significant’ increase in profitability / Image source: Virgin Wines
  • Wine seller’s profitability significantly improved
  • Confident of a ‘positive’ 2024 performance
  • Recruiting new customers remains tough

Shares in Virgin Wines (VINO:AIM) bubbled up 1.1% to 38.4p after the direct-to-consumer online wine retailer uncorked news of a ‘good’ Christmas trading period and reiterated its guidance for the year to June 2024 guidance.

The stock has soured more than 30% over one year due to earnings downgrades driven by the fizzling-out of the pandemic-driven online wine ordering boom as well as internal logistics issues which hit Christmas 2022 sales.

And despite the resilient festive showing, new customer acquisition remained ‘challenging’ in the half ended 29 December 2023, said Virgin Wines, resulting in softer-than-expected sales growth.

‘SIGNIFICANT’ PROFIT IMPROVEMENT

Virgin Wines’ total sales edged up 2% to £34.3 million in the first half, despite a ‘subdued consumer economic landscape’, with sales to repeat customers up an encouraging 5% year-on-year and commercial revenue some 6.5% ahead.

Crucially, the online wine purveyor delivered a ‘significant’ increase in profitability with first half EBITDA (earnings before interest, tax, depreciation and amortisation) fizzing 122% higher to £1.75 million thanks to revenue growth and ‘stringent’ management of costs.

Conversion and cancellation rates continued to improve too, with the cancellation rate of Virgin Wines’ key WineBank subscription base at an 18-month low, although recruiting new customers during the cost-of-living crisis remained tough.

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WHAT DID THE CEO SAY?

Chief executive Jay Wright was particularly pleased with his charge’s ‘strong profitability despite the challenging trading environment, with EBITDA representing over 5% of revenue. Following operational challenges last year, we made significant improvements in our warehouse operations, achieving a planned reduction in fulfillment costs, while maintaining an excellent next day delivery service throughout the busy peak trading period’, he explained.

Wright continued: ‘We have remained debt free and cash generative, holding £17.4 million of gross cash and £11 million of net cash whilst reducing our inventory levels by 24% year-on-year.’

GUIDANCE REITERATED

Wright and the board remain ‘confident of the group’s prospects in delivering a positive 2024 performance in line with current market expectations. This confidence is supported by our underlying trading, high-quality product range, operational efficiency, loyal customer base and proven business model.’

Forecasting year-to-June 2024 pre-tax profits of £1.5 million ahead of a recovery to £2.3 million for 2025, Liberum Capital said ‘the issues that impacted H1 2023 are behind the group and with a material step-up in product margins, and lower operating costs leaves the group in a strong position to accelerate profits as and when the environment for new customer acquisition eases.’

Liberum also stressed that Virgin Wines’ balance sheet is ‘even stronger’ with net cash of circa £11 million and lower inventory of £8.4 million highlighting ‘just how well-run Virgin Wines is when compared to peers’.

Other UK-listed stocks offering exposure to the wine sector include Virgin Wines’ struggling online rival Naked Wines (WINE:AIM), English sparkling wine producer Gusbourne (GUS:AIM) and also Chapel Down (CDGP:AIM), England’s largest wine maker which recently graduated from the Aquis exchange to AIM in order to attract a wider pool of investors.

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Issue Date: 22 Jan 2024