Majestic suffers unexpected dip

Majestic Wine has issued a profit warning predicting a flat performance in its year-end results due to “challenging trading conditions” in the first part of 2014.

The UK retailer, whose financial year comes to a close at the end of this month, reported a “satisfactory” performance during the 10-week Christmas trading period, with like for like sales growth of 2.8%. In particular it reported strong in-store sales of wines priced above £20 during this time.

However, with 2014 off to a slow start, Majestic told investors: “we now expect like for like sales to be flat for the financial year as a whole.”

The news marks a change in fortune for Majestic, whose half year results saw pre-tax profits rise by 4.2% with a sales increase of 3.3%. The retailer attributed this performance to a sunny summer, which saw its sales of Provençal rosé grow by 50%, Argentine Malbec by 40% and Prosecco by 39%.

Although its share of the UK wine market remains steady, according to Nielsen, at 4.1%, commentators have suggested that Majestic is struggling in the face of stiff competition.

City broker Oriel Securities suggested that the profit warning ”highlights a market in which competition is increasing and new store roll-outs are not delivering the required sales uplifts to compensate for declines for the existing estate.”

The company is in the process of expanding its business to 300 stores, as well as strengthening its online service – a rapidly growing sector for UK wine sales – through the creation of its own e-commerce development team.Further investments include a larger distribution facility, an expanded commercial team, additional staff training and improve customer data analysis.

“These investments are necessary to ensure that we can drive further growth although the costs in the short term mean that the Board now anticipates a flatter profit growth profile in the 2015 financial year,” acknowledged the company.

Commenting on the downgraded forecast for 2013/14, chief executive Steve Lewis said: “The Majestic proposition remains compelling to the consumer and our future growth prospects remain bright. I am confident that the investments we are making over the course of the next twelve months will drive future shareholder value.”