Majestic Wine firm despite cautious outlook
Majestic Wine revealed solid full-year figures this morning, but issued a cautious outlook.
Revenue rose by 2.3% to £476.1 million, broadly in line with estimates. Pre-tax profits jumped by 33% to £17.2 million, meeting analysts forecasts. The total dividend was increased by 40% to 7.2p, which comfortably topped the consensus estimate of 5.67p. The wine retailer confirmed it hopes to continue its progressive dividend policy, but the growth rate might be suppressed in the medium term as spare cash could be used to fund investment. The share price is a touch higher today, and volatility has been low.
The company announced that trading this year has been more challenging than last, and cautioned that profit in the short-term might be volatile. Greg Hodder, the chairman, warned that online competition is hurting the business. Despite the guarded outlook, the company confirmed it is still on track to achieve its target of £500 million in revenue by 2019.
Majestic Wine has an online presence, but it needs to build on this as the UK leads the way in online alcohol sales in Europe, according to e-commerce firm Profitero. Naked Wines, the groups online business, saw sales rise by 11.3%. In April, the company revealed a £14 million investment plan to build up customers at Naked Wines. This tells us the company is learning from the mistakes of traditional retailers, as profit warnings from high-street retailers reached a seven-year high in April.
It is encouraging to see that 20% of revenue is generated in Australia and the US. This shows the company is becoming less dependent on the UK for earnings, and diversification reduces business risk.
In August 2017, the company took the decision to grant store managers more responsibility. It will enhance entrepreneurial spirit as managers will have more of a say in the day-to-day running of their branch, and in turn, take home a bigger slice of the shops earnings. This will foster an environment of competition as managers will have more of an incentive to make their operation a success. Large chain stores can lack individuality, while the franchise-lite model might be able to improve the shopping experience. The aim is to have approximately half of its 210 stores operating under the new management style by the end of the year.
Majestic Wine pride themselves on focusing on the £6-£10 per bottle market, while big name supermarkets like Tesco and Sainsburys are competing in the lower price range with Lidl and Aldi. The deep discount retailers have proved themselves to be formidable combatants in prices wars, and Majestic Wine are not in their crosshairs.
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