Close Menu

Majestic stockpiles ahead of Brexit as it plans for “tough times”

Specialist wine retailer Majestic is stockpiling around £5 – £8m worth of booze in the run up to Brexit in March 2019, it has revealed, as it plans for “tough times” in the UK.

Rowan Gormley, CEO of Majestic Wines

Group Chief financial officer James Crawford said the additional inventory would be on top of its normal level and would be brought in shortly before the end of the financial year to mitigate any disruption to the supply chain in the wake of Brexit.

Speaking to db this morning, Josh Lincoln, retail and managing director, argued that other retailers would be impacted in the same way as Majestic, but the work the business had done over the last six months stood it in good stead.

“We’re in a position to be agile to whatever the market throws at us as well,” he told db.

However he admitted that the company had absorbed some of the increasing cost of wine in recent months.

“To keep sales prices stead, margin percentage has taken a bit of hit, but interestingly customers are spending more per bottle, treating themselves to a better bottle but buying fewer of them, so although the overall spend is largely similar, it is coming from fewer bottles, but of a better quality.”

Lincoln said this trend was not connected to Brexit and would not influence stockpiling decisions, adding that buying decisions were based on the type of wines that were in growth.

Sluggish market

In the company’s half yearly results published this morning, the UK market was increasingly sluggish, the company said, and it had revised its forecast on earnings before interest and tax (EBIT), expecting this to be flat across the financial year, instead of seeing growth.

“The UK retail market is tough and will continue to be a drag on performance in Retail and Majestic Commercial,” the results stated. “Whereas we had previously targeted growth, we now expect FY2019 adjusted EBIT across these business units to be flat at best vs FY2018”.

Prior to this, the consensus was that profits across the business would grow at least £600k, Crawford confirmed to db.

Group Chief Executive Rowan Gormley said the company was “planning for… and investing through tough times” in order to build a more profitable future.

This included boosting its online business to around 45%, following investment and increasing its international business, which current accounts for around 20%, “with both the option, and intention, to invest further in order to drive returns.” For example investment in new customers in Naked Wines rose 60.6% to around £8 million, with the US increase up 124.8%.

‘Steady as she goes’

However the company said it was doing well overall in a tough market, with group revenue up 5.4% and accelerating as a result of recent investment.

Bright spots included underlying revenue growth at Naked Wine accelerating to 14% in the first half of this year, up from 11.6% in the same period last year. Majestic Retail also saw sustained revenue growth at 1.9% in the first half and the company reported success of its retail subscription service, with around 29k Retail Concierge customers at end of period driving online retail sales, and orders rising 30%.

“In the Retail and Commercial businesses we are going into peak season in better shape than ever before,” Crawford wrote in his report.

KPIs highlighted by the company included 90% customer satisfaction and store manager retention up 4.2 percentage points to 85.3%.

‘On track’

CEO Gormley insisted the company was delivering against the plan it set out in April 2018, by growing sales, seeing repeat customer contributions rise and investing in new customer and was on track to achieve the oft-quoted £500m sales target in FY2019.

“That plan was to accelerate growth by investing in new customers and, so far, the plan is on track,” he said.

Speaking exclusively to db this morning, Crawford said the revenue momentum was good.

“In the last 12 months we’ve had around £490 million of sales at this point, we’ve been tracking up to it through the group towards that number, we just need a second half the year that sustains the sales trend of the first half to hit that number and we’re confident that will happen,” he said.

However as a result of extra investment, profits fell and the company reported losses of £0.2 million, compared to £3.1 million in the first half last year.

Shore Capital analyst Phil Carroll said that on face value, the results looked “solid enough”, with retail growing sales on the back of gross margin investment, an improvement in the Commercial division (falling only 2%, compared to 3.4% in the same period last year) and accelerated sales at Naked Wines.

“The full year numbers will tell us more but the plan seems to be working despite challenging markets. Profitability in FY2019 is probably going to be lower than consensus given the comments around increased investment and flatter profit profile for Retail and Commercial but profitability was always going to be down year-on-year. Now it’s a case of waiting for management to prove its approach works,” he said.

It looks like you're in Asia, would you like to be redirected to the Drinks Business Asia edition?

Yes, take me to the Asia edition No