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Majestic Wine downturn is temporary, predict analysts

Worse than expected consumer demand for wine is set to bring Majestic Wine's run of good results to an end, but financial experts believe the retailer will recover.

Majestic said last week that sales for its current financial year, to the end of March, are not likely to beat the previous year, on a like-for-like basis – which excludes sales from new stores.

A near-3% increase in like-for-like wine sales over Christmas was wiped out by poor consumer demand in the early months of 2014, Majestic said, adding that its profits for the current year are also unlikely to rise.

The firm’s share price was today (24 March) down 19% versus one week ago.

Wine retailing outside of the big supermarkets has been a precarious venture in the UK over the past several years, as shown by the recent demise of several chains, such as Oddbins and Threshers.

Majestic has regularly posted solid results, which perhaps explains why its latest announcement jolted some shareholders’ confidence to such an extent.

But, several analysts tracking Majestic do not foresee long-term problems. ‘This was a disappointing setback from what is a well-run, highly cash generative company,’ said analysts with Investec. ‘However, we believe Majestic’s longer term growth prospects remain unchanged.’

In an internal show of confidence, Majestic’s buying director, Justin Apthorp, purchased a further 50,000 shares in the retailer at 410 pence each, in a deal dated 20 March. That brings his total shareholding to 0.83%.

Many in the trade blame the tax system for turning the UK into an unnecessarily difficult place to make money from wine. Duty and VAT account for more than half the cost of a £5 bottle of wine, and more than a third of the cost of a £10 bottle, according to figures from merchant Bibendum.

Retail wine prices could edge up further after Chancellor Georgie Osborne last week raised wine duty in-line with inflation.

Written by Chris Mercer

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