Majestic Wine shares enjoy vintage session

Majestic Wine  (WINE)is back in profit, but don’t expect chief executive Rowan Gormley to be charging the retailer’s glasses and proposing a toast to a job well done. Not just yet, anyway.

Even though shareholders have already reaped benefits from a 49% improvement in the company’s share price over the past year, Gormley believes the hard work has only just begun.

He’s certainly got the retailer back on the right track following its Naked Wines acquisition of two years ago, helped by a renewed focus on growing the customer base at Naked and restoring Majestic Wine’s entrepreneurial spirit.

And now that interim results showing a profit of £3.1 million have got the retailer out of the red, Gormley has told shareholders that the company is “ready to put our foot on the gas and accelerate growth.”

Shares responded to the upbeat comments today with a 10% jump to 422.5p.

Alistair Davies, an analyst at Investec Securities, is backing Gormley to keep on delivering as he has a price target of 450p a share alongside a ‘buy’ recommendation.

Davies said: “The valuation is increasingly attractive in our view. The interim results demonstrated that retail can deliver sustainable profitable growth, with Naked starting to unlock its long-term international growth opportunities”

Naked Wines, which funds independent winemakers to make exclusive products at preferential prices, is now profitable in all three of its geographic markets. Progress has been particularly impressive in the largest market of the United States, where sales were up 9.9% and underlying earnings up by £5.2 million from a loss this time last year.

Having completed much of the heavy lifting, Gormley is now looking for investment opportunities to accompany the retailer’s improved trading performance.

He said: “We expect full year results to be in line with current market expectations. Looking further out, we aim to increase the rate of sales growth in the medium term, by steadily increasing our investment in new customer acquisition.”

At Majestic Retail, sales grew by 2.3%, which is a slowdown compared to the rate of growth last year. Despite increasing its repeat customer base to 510,000 people, price increases brought about by weaker sterling resulted in a total volume reduction.

The gross margin in Retail was 35 basis points higher than a year earlier, which contributed to a rise in underlying earnings of 22.7% to £4.6 million.

Areas for Gormley to focus on still include Majestic Commercial, which saw sales decline by 3.4% in the half year due to poor retention and sales performance from its existing account base.

He said: “Majestic Commercial is still in a holding pattern while we focus on the much larger Majestic Retail business. Last year, we said we would turn to it in earnest in 2018 and that remains the case.”

This article is for information and discussion purposes only and does not form a recommendation to invest or otherwise. The value of an investment may fall. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.

Source.