Majestic has said it will cut its store expansion plans after net profits slid by more than two-thirds in the first six months of its financial year.
Majestic Wine, which bought Naked Wines for £70m in April and installed its founder, Rowan Gormley, as its new CEO, said it will now aim to increase its store base to 230 from its current total of 211 – some 100 stores shy of its previous 330-outlet target.
Pre-tax profits at the wine retailer fell by 50% in the first half of its financial year, versus the same period of last year, to £4.3m. Net profits were £1.8m for the six months to 28 September, versus £6.4m a year earlier.
Profits largely fell due to charges related to the Naked Wines acquisition and a £2.6m impairment charge associated with its under-performing Lay & Wheeler subsidiary. Property sale proceeds of £4.8m helped to offset some costs.
Few were expecting a good set of numbers after Majestic previously warned it faced tough trading conditions in a UK wine market now dealing with the rise of discounters Aldi and Lidl.
Majestic’s share price initially dropped on the results news, but was up by 2.7% for the day by mid-afternoon.
Majestic today (16 November) also outlined a three-year transformation plan targeting more than £500m in sales by 2019, based on disciplined investment, a switch from opening new stores to recruiting new customers, expanding Majestic’s business-to-business activities and continuing to grow the Naked Wines operation.
Sales in its recent half-year rose by 6% if the Naked Wines acquisition is excluded, and like-for-like sales increased by 2.3% – a figure that excludes stores opened since the same period of 2014.
Net sales rose by 36% to £181.6m if Naked Wines is included in the numbers. Naked Wines saw strong success in the US, in particular, and also reported operating profits (earnings before interest and tax) of £949,000, versus losses of £1.9m in the same period of 2014.
‘Root and branch reform’
Majestic chairman Phil Wrigley said there had been a ‘root and branch’ review of the business since Gormley joined the company.
‘Six months into my new job it is clear to me that we have a solid core business at Majestic, and two great growth engines in Naked Wines and our Commercial business,’ said Gormley.
The retailer has already dropped its minimum purchase rule of six bottles.
‘We have a clear plan, which will require investment and take three years to complete, but will also deliver a better business that can create sustained growth in shareholder value.’
Under Gormley, the focus is switching from expanding Majestic’s store network to investing in marketing, staff and IT, including the scrapping of store manager bonus limits and a pilot programme to give some branches – dubbed ‘Jedi stores’ – more flexibility in their operations.
Additional reporting by Chris Mercer.