Majestic Wine, the UK's largest specialty wine retailer, has said that it is confident of hitting its profit expectations for full-year 2018, as well as hitting a sales target of £500 million by 2019.
In a statement to coincide with the hosting of Capital Markets Day yesterday, the group said that it was planning to up its level of investment in driving new customer acquisition to as much as £12 million, which, it believes, will lead to an additional £48 million per year in future value.
'The opportunity to invest in new customer acquisition is materially bigger than previously thought, and the board believes there is potential over time to double from the current level,' the company wrote in a statement. 'Returns are trending higher as we continue to optimise our investment approach.'
Investment Strategy
Majestic Wines, which operates the Majestic Retail, Naked Wines and Lay & Wheeler banners and has customers in the UK, the USA and Australia, said that it plans to invest between £9 million and £12 million, of which £7 million to £10 million will be directed towards growing the business, and the remaining £2 million invested in ensuring 'safe' growth.
This latter factor is notable, given the recent challenges at Conviviality, which was one of Majestic Wines' biggest competitors before its recent break-up.
It said that it expects to see 'significant benefits' from the investment from full-year 2021 and beyond.
"We are in the fortunate position of having the option to accelerate growth by investing in new-customer acquisition," commented Rowan Gormley, Majestic Wine's chief executive.
"We are starting from a good place, with the core business on track to meet our 2019 sales target of £500 million, and the market's expectation for profits and dividend in FY18," added Gormley.
Sales Uplift
Gormley said that, in the last three years, the company has doubled sales at its Naked Wines business and delivered profitability across its three markets, following investment in its customer acquisition process.
"We believe we can double the level of investment again while maintaining the returns, driving sustained growth in shareholder value," he said. "On a risk/return basis, the case for accelerating investment is clear. We can measure success in months while delivering returns over years.
"This is the right thing to do to maximise shareholder value," Gormley added.
Analyst Viewpoint
Commenting on the group's performance, analyst Phil Carroll of Shore Capital Stockbrokers said, “The logic management put forward with its updated strategy in today’s announcement makes sense to us, on face value. However, we suspect it may take the market some time to fully absorb, and clearly getting comfortable with management’s justification of the bigger market opportunity is going to be key. This includes ourselves, too.
“Therefore, whilst our forecasts are going to see a hit to growth in the P&L next year, it should result in strong growth and value creation going forward,” Carroll added.
© 2018 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.
