Majestic Wine tanked today after the firm warned on profits due to tough trading at its commercial arm and a costly marketing campaign for Naked Wines in the US.
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Majestic cited weakness in its commercial arm, with sales flat and margins falling, and a failed acquisition drive for its Naked Wines brand in the USA, which will see the crowdfunding arm for independent vineyards tip back into the red after posting a profit a year ago. The Commercial segment is a business-to-business wine retailer selling to pubs, restaurants and events.
Full year earnings in the division could be around £2million lower than expected, Majestic cautioned.
Majestic said its commercial division failed to grow sales in the first half of the year, and profit margins fell.
Analysts on an average were expecting earnings before interest and tax (EBIT) of 17.4 million pounds for the current financial year, according to company-complied estimates.
“It is very disappointing that two isolated factors are distracting from the great progress across the rest of the group”, chief executive Rowan Gormley said.
The gloomy trading update sent the company’s share price down by 25% in early trading on Wednesday, to 325p.
Britain’s biggest specialist wine retailer said it had overspent on testing a direct mailing campaign at Naked Wines in the US. It has now launched an internal review into the unit.
“We have always said that we would adopt a test and learn approach, and be quick to redeploy capital from underperforming areas, which is exactly what we are doing”.
He added the group remains on track to notch up £500 million sales by 2019 and sought to assure investors Majestic was still aiming to resume shareholder dividend payouts this year.
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Majestic Wine has 210 wine warehouses across the United Kingdom as well as two branches in France, while Naked Wines operates across the U.S., Britain and Australia. Its subsidiaries include Majestic Wine Warehouses Limited, Lay & Wheeler Limited, Les Celliers de Calais S.A.S., Majestic Wine Employee Share Ownership Trust Limited, Naked Wines International, Nakedwines.com Inc. and Vinotheque Holdings Limited.
