Wine Retailer Naked Wines 'Coming Of Age', Says Analyst
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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