‘Remarkable’ growth of Naked but aggressive discounting hits Majestic’s profitability

Poor profitability at Majestic Wine was offset by the “remarkable and sustained” growth of Naked Wines, the group’s board reported today, as it published its annual results.

Naked Wines founder Rowan Gormley

Naked ambition

Revenue growth at the pureplay online wine subscription business accelerated by 14.5% to £178.4 million it said (up from 11.3% last year), bolstered by the growth of the US division, where sales were 21% higher year on year.

With the US now its biggest division, this “proved” the success of its decision to invest in acquiring new customers, it said, adding that the overall Naked business had made “remarkable and sustained growth”.

“We’ve continued to grow in our most mature market – the UK; we’ve entered, disrupted and grown rapidly in the US, and we are leveraging our experience and marketing techniques in Australia” it said.

Profitability down at Majestic

It was a less rosy picture at the more turbulent UK retail business however, which was hit by poor profitability due to aggressive competitive pricing and a tough trading environment.

Although there was 1.5% year-on-year growth in revenues of £267.7 million, the high street specialist saw gross profits falling £2.0m on the back of “tactical discounts” to retain existing and acquire new customers.

“Competitive intensity and aggressive pricing put pressure on gross margins,” the company reported, although insisted that the results showed its resilience and its strategy to “beat the market by investing in customer relationships, rather than stores” was showing signs of success. It pointed to customer growth following customised and targeted marketing, the growth of online sales, and the “dependable and recurring revenue” of its Concierge subscription business.

There was more promising news from the Commercial business, which retuned to profitability under its new team, with revenues up 1.8% to £44.1m and EBIT improvement of 3.2% year-on-year.

Meanwhile, the group’s fine wine division, which will be sold separately from the UK retail and commercial business, was also in growth. Higher levels of en primeur shipments boosted revenue growth by 22.7%, and the underlying revenue was 2.4% higher year-on-year, with earnings before interest and tax of EBIT growth of 22.8% was achieved through a combination of margin improvement and cost control, it said.

Sale of Majestic

The company also revealed more detail in its plans for demerging the group, confirming the sale of the Majestic and Commerical Business was at an “advanced” stage of talks with multiple bidders and expected to be concluded in the summer. It also confirmed that Lay & Wheeler would be sold separately.

No dividend will be paid until the Majestic business has been sold, it said.

Refocusing the board

It also announced changes to the board, with the appointment of US retail heavyweight John Walden, former Homebase and Argos boss, who would bring substantial retail experience across both online and face to face channels, “as well as significant US experience to guide our continued growth into that market”. He is taking over from chairman Greg Hodder, who will step down as chairman in August, and leave the board in the new year.

It has also promoted Nick Devlin, the President of the US Naked Wines business to the e new position of Group COO.

“Nick has done tremendous work with the US business in the last two years, driving our ambitious growth agenda in a structured and efficient way, and we look forward to him having the same impact on the rest of the Group,” Hodder said.

One Response to “‘Remarkable’ growth of Naked but aggressive discounting hits Majestic’s profitability”

  1. Charles Crawfurd says:

    It has been obvious for some time Gormley’s focus and effort is behind Naked so Majestic’s profit slump should be little surprise. Glad there some people around who still believe in the Majestic brand and concept. It would be a tragic loss to the wine retail world if it disappeared

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