Majestic Wine has announced a transformation plan aimed at growing its Naked Wines business, as well as raising its sales and profits.
"It is clear that Naked Wines has the potential for strong, sustainable growth, and we will deliver the best results for our shareholders, customers, people and suppliers by focusing all our energies on delivering that potential," commented Rowan Gormley, the group's chief executive.
Here's how leading industry analysts viewed its plans.
Greg Lawless, Shore Capital
"The group has been evolving over time, since Naked Wine backed into Majestic Wine four years ago. Today the company has 45% of its sales online and generates 20% of its sales outside of the UK. Today’s outline of the next phase of the transformation plan will see the group renamed Naked Wines plc, reflecting the focus on a single brand and model.
"We look for further clarity on the outcome of the sale/magnitude of the store closure programme, noting that the average lease length is less than five years and that [approximately] 40 of the stores are freehold properties. Today’s retrenchment from the store estate is a major change in strategy, and we place our recommendation under review until we have further clarity."
Wayne Brown, Liberum Capital
"A drastic and unexpected change in strategy leads to cuts to forecasts from FY20E onwards. PBT for FY19E, before restructuring costs, should come in line with the [approximately] £11 million [€13 million] PBT consensus. We know investment in Naked is to rise by £6 million [€7 million] in FY20E and then by more thereafter.
"If this investment can consistently be invested at a sustainable ROI, then this is a good thing, but we wait to know if the new digital channels the group is targeting are generating the same, or better, returns than vouchers and other routes that have been primarily used historically. The sale of Majestic or site closures is a complete change, and this could have material impacts to the balance sheet, and dividends – quite a change in tone and strategy since the CMD last year. We now assume no final dividend for FY19E due to timing of the transformation programme, but one should view the outer years at risk."
Eleonora Dani, Stifel
"A specialist retailer, Majestic is made up of four businesses, with Naked Wines – 33% sales – representing the main driver of sales growth. A subscription-based model, Naked Wines is an analytics-driven business targeting the fastest-growing customer segment in the industry, however, we believe 'faster' growth comes with declining returns, and therefore we see a risk to the stock's valuation if customer acquisition investments slow down.
"NW's model is unique: customers are charged monthly and can place an order of the desired wines whenever preferred, as long as nine bottles are purchased, benefitting from convenience, personalisation and exclusives. However, we struggle to see the differentiation of the offer and objectively determine what is the best subscription service. We see customers' options to buy wine elsewhere, i.e. supermarkets, and millennials' health awareness as the main challenges to the NW's model."
© 2019 European Supermarket Magazine – your source for the latest retail news. Article by Stephen Wynne-Jones. Click subscribe to sign up to ESM: European Supermarket Magazine.
