Majestic Wine warns on profits after costly US push

Majestic Wine has warned over profits after an ill-fated and costly marketing campaign for its Naked Wines business in America and tough trading in its commercial arm.

Majestic Wine said annual profits will fall short of City hopes. Picture: Toby Williams

The wine retailer said it was reviewing its commercial division after seeing sales flat-line and pressure on its profit margins as the first half proved “even more challenging”. Earnings in the division could be around £2 million lower than expected, Majestic cautioned.

Majestic, which has 14 stores in Scotland, said overall group earnings for the year to 3 April 2017 are set to come in lower than City expectations, sending its shares down almost 28 per cent in early trading.

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The group’s woes have been compounded by its Naked Wines online business, bought in April last year for £70 million, which is set to suffer a small loss after taking a hit on a failed direct mail campaign in the US.

It will see the division slip back into the red after making a surprise maiden profit in the last financial year.

Chief executive Rowan Gormley said: “It is very disappointing that two isolated factors are distracting from the great progress across the rest of the group.”

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He insisted his turnaround was bearing fruit in the retail arm, which enjoyed its first rise in like-for-like sales in four years for the 12 months to 28 March 28. He added that the group remained on track to notch up £500m in sales by 2019 and sought to assure investors Majestic was still aiming to resume shareholder dividend payouts this year.

Majestic Wine has 210 wine warehouses across the UK as well as two branches in France, while Naked Wines operates across Britain, the US and Australia. It also owns specialist fine wine business Lay and Wheeler, which recently returned to growth, according to Gormley.

Analysts at Liberum said they believe the recent troubles at Majestic are “short-term in nature and do not reflect anything more sinister”.

Gormley is the founder and former boss of Naked Wines, and was appointed chief executive of the wider Majestic Wine group last year to help boost its fortunes.

He replaced Steve Lewis, who left the retailer in February 2015 after poor sales as the business faced increasing competition from supermarket rivals.