Majestic Wine tumbles on profit warning

Majestic Wine shares tumbled on Wednesday after the company said it expects 2017 profits to be below current market expectations due to lower-than-expected sales in its commercial business and investment in the US division of Naked Wines.

Current pre-tax profit consensus expectations for the year ending 3 April 2017 are £16.1m, the company said.

The wine retailer said the first half of the current financial year has proved to be even more challenging with the result that commercial sales growth is flat year-on-year and the gross margin percentage achieved on those sales has declined by around 200 basis points.

Assuming these negative trends persist through to the end of this financial year, and with the balance of the year being seasonally significant, the commercial division's earnings before interest and tax performance could be around £2m lower than expectations.

Majestic also pointed to higher marketing costs for its US division of Naked Wines.

Chief executive Rowan Gormley said: “It is very disappointing that two isolated factors are distracting from the great progress across the rest of the Group. 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.

“While, this approach is delivering good results in the other business units the scale of the US market means that even a test can have a material effect on profits.”

Nevertheless, Majestic said it remains on track to hit its three-year plan of £500m sales by 2019.

At 0820 BST, the shares were down 25% to 325.25p.