Majestic celebrates return to growth

Published on Saturday 12 June 2010 14:22

MAJESTIC Wine is expected to show a sparkling return to growth this week despite one of the toughest trading periods on record for independent off-licences.

Analysts raised their recommendations on Majestic shares following a brief trading update from the company last month, which advised that its financial results for the year to March would be at the upper end of expectations.

Most are predicting a profit of about 16 million, with the highest estimate coming in at 18m.

It will represent a significant turnaround for the AIM-listed company, whose profits the previous year fell by more than half to 7.4m in the downturn.

Majestic's recovery follows the decision by chief executive Steve Lewis to cut the company's long-held minimum purchase requirement from a full 12-bottle case to just half a dozen bottles.

Lewis, who took the top job at Majestic in the weeks before the financial collapse of 2008, says the shift to six bottles was what an "overwhelming" number of the company's middle-class clientele wanted.

He has so far been proven correct. In the first half of the financial year, when First Quench's Threshers, Haddows and Wine Rack operations were staggering into administration, Majestic clocked up a 9 per cent rise in profits. That was followed by a near 12 per cent rise in sales during the nine weeks covering the Christmas and New Year period.

"It is a good business, and I still expect the six-bottle implementation to be working for them," says Investec analyst Natalia Marisova. She is predicting profits of 15.8m on sales of 241.5m

Supermarkets now account for more than two-thirds of all off-trade alcohol sales, as cut-throat pricing has driven penny-conscious consumers through their aisles. Independents have thus found it tough going, with some, such as Cockburn's of Leith, succumbing to the intense competition.

The average price paid for a bottle of wine in a supermarket is about 4.40, versus 6.40 at Majestic. Marisova says one key element supporting prices at Majestic is the company's middle-class target market and its focus on customer service.

"It is for people who actually like and understand wine," she says, "but for people who are not all that into wine, the staff are happy and able to tell them about what they are buying.

"That sets them apart quite a bit – this edge in product knowledge and service."