Majestic Wine swings to loss; stockpiling ahead of Brexit

Wine seller Majestic Wine was under the cosh on Thursday after saying it swung to a loss in the first half and announcing plans to stockpile ahead of Brexit.

In the half year to 1 October, the company swung to a reported pre-tax loss of £0.2 from a profit of £3.1m in the first half of last year even as revenues rose 5.4% to £229.1m. Majestic attributed the drop in profits to increased customer investment and fixed costs.

The group also said that a "sluggish" UK market was holding back its retail and commercial arms.

Naked Wines saw underlying revenue growth accelerate from 11.6% in the second half of 2018 to 14%, while Majestic Retail sustained underlying revenue growth at 1.9%. Adjusted earnings before interest and tax at both fell, however. Naked EBIT declined 29.1% to £3.2m and Retail EBIT was 28.7% lower at £3.3m.

Chief executive Rowan Gormley said the company was "doing well in a tough market".

"We set out a plan at our capital markets day in April 2018 and we are delivering against it. That plan was to accelerate growth by investing in new customers and, so far, the plan is on track."

Majestic said that it was planning to bring £5-8m of additional inventory into the UK above its normal levels, shortly prior to its financial year end, to mitigate any potential supply chain Brexit disruption in March next year. It also plans to build additional inventory to support future Naked growth, in the US in particular.

Peel Hunt downgraded the stock to ‘hold’ from ‘buy’ after the update.

"Management states that it’s ‘steady as she goes’ at Majestic right now. We’d say that this was a rather ‘glass half full’ interpretation of the prevailing situation. Yes, Naked is making the expected progress, US partnerships are flourishing and investment spend will increase.

"However, the core retail business looks very fragile currently, with industry conditions extremely tough and no room for any price increases to be passed on to customers (which puts a lot of pressure on gross margins). It’s a chunky downgrade today (circa 15%) and whilst we understand the longer-term opportunity at Naked, we suspect the forecast might well keep falling in retail, something that the overall multiple will not be tolerant of."

Peel Hunt slashed its price target on Majestic to 350p from 500p.

At 0930 GMT, the shares were down 15% to 318.62p.