Online wine retailer Naked Wines has been one of the beneficiaries of stricter lockdown measures in the UK, and is 'coming of age' as a business, according to a leading retail analyst.
According to Mark Irvine-Fortescue of Stifel, there are indications that Naked Wines saw 'strong Christmas trading' and continues to capitalise on stay-at-home trends, particularly after shedding itself of the legacy Majestic Wines business.
In its half-year results to 28 September, Naked Wines reported revenue of £157.1 million, a 80% increase year-on-year. The company posted an EBIT loss of £3.2 million, which was an improvement on the previous year.
"COVID restrictions have magnified channel shift from offline to online, benefiting Naked Wines' direct-to-consumer (D2C) model," Irvine-Fortescue wrote in a briefing note. "During Lockdown 1.0, US online sales of wine grew from 5% of off-premise value to 20% (source Nielsen). Benefitting from this shift, the Naked US business delivered 95% revenue growth in H1.
"There are signs that some of this business sticks when restrictions are lifted, with D2C market revenue +20% Y/Y in Q1 (April-June) accelerating to +28% in Q2 (July-September)."
UK searches for Naked Wines also "surged" in the run up to Christmas, he added, although this is not necessarily indicative of a permanent channel shift from offline to online.
In terms of how well Naked Wines is positioned to capitalise on future growth opportunities, Irvine-Fortescue noted that the business "is very much being managed for growth. The investment vs. payback model has now been well tested, and a stellar H1 performance – with 7.6x payback materially ahead of the 4x 20 year target – has led to a ramp up in new customer investment in FY21 and FY22."
He added that the business is likely to see positive EBIT growth in 2023, subject to post-vaccine trading performance, and that the business' current level of cash in hand (£76 million as of H1) indicates that investors are "increasingly comfortable" with the trade-off between revenue growth and profitability.
"Naked Wines has enjoyed a transformational year in terms of customer demand, investment, growth, and share price performance: +200% since the start of 2020 vs FTSE 250 -4%," said Irvine-Fortescue. "We see a wide potential valuation range, reflecting a variety of performance outcomes over the next few years in a dynamic industrial environment."
Commenting back in November, Nick Deviln, the business' chief executive said, "Ultimately the most significant impact of COVID-19 on Naked Wines is not found in these interim results, but in the way it has accelerated the growth of the online wine category and increased consumer willingness to trial a new and better way to buy wine."
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