Majestic Wine's first-half profits dip due to investments

17 November, 2014

Majestic posted a 10.5% drop in profits for the 26 weeks to September 29, blaming a reduced demand for the 2013 Bordeaux vintage and an investment in infrastructure and technology.

Sales rose 2.8% to £133.8 million compared to the same period in 2013, but profits dropped from £9.5 million to £8.5 million.

Majestic said market share had increased by 0.1% to 4.3%, while like for like sales were up 2.8% in UK stores.

But pre-tax profits at its fine wine arm Lay & Wheeler dropped 79% to £127,000 as there was little demand for what Majestic called “the weak 2013 Bordeaux vintage”.

In July Majestic moved to a larger distribution centre, while it has also moved to a new central support office and overhauled its consumer data systems.

These investments took a chunk out of its profits, the retailer said.

Chairman Phil Wrigley said: “The retail environment in which we operate remains highly competitive, however, Majestic traded in line with our expectations and we increased market share over the period by 0.1% to 4.3%.  

“Majestic Wine has a strong and differentiated model and we remain committed to delivering an exceptional experience for our customers.

“As previously announced the current financial year is characterised by the group developing and investing in market and customer insight, better infrastructure and the latest technologies necessary to secure our future growth.

“The cost of these investments, coupled with difficult trading at Lay & Wheeler around the weak Bordeaux 2013 vintage, has seen the group's profit before tax for the six month period ended September 29, 2014, decline to £8.5 million against £9.5 million for the first half of the previous financial year.

“During the period we invested in analysing the rich transactional data that we hold to help us understand better how customers interact with us across our entire multichannel offering.  

“By combining this information with newly commissioned customer and market research we have identified opportunities for us to further develop our proposition and better target our audience. We are investing in our teams, our stores and customer facing technologies to deliver these opportunities.

“We also successfully relocated both our central support office and distribution centre to more modern and larger facilities. Both of these were necessary to support future growth. The lease term on the old central support office was coming to an end and we took this opportunity to purchase a long leasehold on attractive terms and locate all our teams into one, modern facility. The previous distribution centre was operating at full capacity and the new facility is large enough to handle our expected future volume growth.

“The board believes that these investments in market and customer insight, better infrastructure and latest technologies will drive future value for the business and our shareholders albeit they impact our reported profit in the short term.”

Active customers at Majestic rose 1.9% to 643,000 while average spend increased £3 to £130. The average amount spent on a bottle of still wine was £8.02, up from £7.71 the previous year.

The star performers were French Picpoul, Argentinian Malbec and rosé from Provence, up 127%, 41% and 32% respectively.

Online sales increased 12.3% to £12.9 million, now representing 10.8% of UK retail sales.

Analyst Kate Calvert, from Investec, said: “An 11% fall in pre-tax profits is due to previously flagged infrastructure investment and a disappointing Lay & Wheeler performance. Encouragingly, UK retail stores’ like-for-like sales were up 2.8%, active customers were up 1.9% and online sales grew 12.3%. This should reassure that the core business is healthy and solid.”

Majestic chief executive Steve Lewis added: “The 2015 financial year is one of investing to put in place the building blocks to deliver future growth and shareholder value and we are progressing to plan.”

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