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Majestic Wine Plunges As Setbacks Prompt Profit Shortfall

Published on Sep 21 2016 12:30 PM in Drinks tagged: Trending Posts / Wine / Drinks / Majestic Wine

Majestic Wine Plunges As Setbacks Prompt Profit Shortfall

Majestic Wine Plc shares fell the most since their market debut almost 20 years ago as the U.K. drinks retailer said profit will be hurt amid increased efforts to build its customer base at home and in the U.S.

The stock’s slump of as much as a third slashed the company’s market value by 101 million pounds ($131 million) to 205 million pounds.

Majestic has run into difficulties in two areas outside its main U.K. retail business, both of which it has previously described as “growth engines.” At its commercial unit, which supplies wine to bars, restaurants and corporate clients, business conditions are getting tougher as the company increases spending to win customers. Naked Wines, an online platform for wine enthusiasts acquired last year, had a reversal in the U.S. after a direct mail campaign failed to produce the expected results and was withdrawn.

“It is unlikely that commercial will bounce back any time soon,” Peel Hunt analyst John Stevenson said in a note. The setback at Naked Wines is a “one-off, but one-offs in the U.S. do not come cheap,” and will reduce profit by 2 million pounds, he said.

The troubles mean earnings before interest and tax are likely to fall short of analyst estimates for the year ending April 3, Majestic said. Stevenson cut his estimate of pretax profit to 12 million pounds from 16 million pounds. He also lowered next year’s projection to 20 million pounds from 23 million pounds.

The shares were down 25 percent at 325 pence at 11:20 a.m. in London.

Majestic has started an internal review of the commercial business, Chief Executive Officer Rowan Gormley said. The company’s retail unit is “on track and making good progress,” while the Naked Wine businesses in the U.K. and Australia are performing well, he said.

Together, the commercial unit and Naked Wines account for about 37 percent of the company’s revenue.

Majestic said it still expects to resume dividend payments this year and to deliver a goal of 500 million pounds of sales by 2019.

News by Bloomberg, edited by ESM. To subscribe to ESM: The European Supermarket Magazine, click here.

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