Majestic calls in new strategy as profits dip

Majestic Wines has launched a three-year strategy to reach sales of £500 million by 2019, after announcing a 50% drop in pre-tax profits for the first half of this year.

Releasing its interim results for the 26 weeks to 28 September this morning, Majestic Wine reported “encouraging” progress with sales up by 36%. However pre-tax profits fell by 50%, which it attributed to the continued knock-on effect of its £70 million acquisition of Naked Wines last year.

In June, releasing its first full year results statement following the acquisition, the company reported a drop in pre-tax profits of 22.5%. 

Total revenue, excluding Naked Wines, was up 6%, while Naked Wines saw strong growth with sales increasing by 35% year-on-year. Reported profits before tax dropped by 50%, which the company attributed to “non-cash charges relating to the Naked Wines acquisition, interest costs and exceptional items”. The company has closed the period with a total debt of £25m, which it said was the result of borrowing needed to acquire Naked Wines.

Despite being in a period of change which Rowan Gormley, Majestic CEO, said would impact this year’s profits, he is confident that the company would see “sustainable growth as the anticipated returns from our initiatives are realised”.

“Fortunately, the Board acted decisively and quickly when it became clear that a change of direction was required, so our core competitive strengths are intact and provide a sound foundation to work from”, he said.

Majestic used the release of its interim results to also announce the launch of a three-year “transformation plan”, setting itself a target of achieving £500m worth of sales by 2019.

Key elements of the plan include a shift away from opening new stores and toward new customer recruitment, with the company reducing its total UK store target reduced from 330 to 230. Its total number of UK stores currently stands at 211.

A key focus of the plan will also be to continue to expand its Naked Wines businesses in the UK, USA and Australia, and expand its Majestic B2B business by winning additional accounts.

“Six months in to my new job it is clear to me that we have a solid core business at Majestic, and two great growth engines in Naked and our Commercial business”, added Gormley. “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.”

The new strategy has seen the group split into four divisions: retail (which includes its Calais business), Naked Wines, Commercial (including its B2B business) and Lay and Wheeler (its fine wine arm)

Earlier this year Majestic scrapped its six bottle minimum policy, which is in line with a drive to simplify its pricing policy and improve customer experience in store and online. It also recently launched a click and collect service in all Majestic Stores for Naked Wine customers, cutting delivery costs for its “angels”.

“We now have a first class team and a compelling strategy to create a real step change in the value of the business for our shareholders”, added Phil Wrigley, Majestic’s chairman. “The team has completed a thorough ‘root and branch’ review of the business, identified the key steps to be taken and the measures that will demonstrate our progress over the coming years. Alongside all this activity the new team has traded the business effectively.”