Majestic profits fall as Lay & Wheeler slips into the red

Majestic Wine has trimmed back its plans for new store openings.

Majestic Wine has trimmed back its plans for new store openings. - Credit: Archant

Majestic Wine reported a slide in annual profits today as its new boss pledged to scale back new store openings and warned that earnings would take a further hit as he tries to inject some fizz into the business.

Chief executive Rowan Gormley said he wanted to make the shopping experience “simpler, easier and more fun” for customers as part of a series of initiatives to turn around the group’s fortunes and will cost around £3million to achieve.

Pre-tax profit fell 22% to £18.4m in the year to the end of March although like-for-like UK retail store sales rose 1.9%.

Majestic’s fine wine merchant Lay & Wheeler sunk to an underlying loss of £100,000, down from a £1million profit the year before.

It was hit by a £500,000 write-down partly due to a fall in value of some wine stock to below the price paid for it, mainly the Bordeaux 2010 vintage.

The business also suffered from a “very disappointing” Bordeaux 2013 campaign. “Although the quality of the vintage was good, sales were down across the industry,” Majestic said.

Majestic had been planning to expand to 330 stores from its current 213 but the new boss said today that he wanted to limit new openings to 20 to 30 locations “that can deliver a good return on investment”.

Most Read

He added: “It is obvious that we need to make investments to reinvigorate Majestic Wine. These investments will initially suppress profit in the short term but I am confident we can rebuild momentum in this excellent business.”

Mr Gormley joined Majestic in April after it bought online rival Naked Wines, a company he founded in 2008, for up to £70m. He replaced Steve Lewis, who left the retailer in February after poor sales.

The new boss has embarked on a “thorough strategic review” of the business. He said: “Although I have only been chief executive for 10 weeks, it is clear to me that the enlarged Majestic Group has excellent future prospects.

“However, it is also clear that Majestic Wine had a period of challenging trading in recent years. Profit declined last year with growth in online and commercial sales not enough to offset the underlying sales decline in the more mature Majestic stores.

“There are a number of areas where customers are telling us that we need to do better, and issues which are holding us back need to be addressed.”

Among new initiatives is investment in staff training and retention for Majestic’s workforce of more than 800.

Mr Gormley said he also wants to build sustainable sales through personalised service and rebuild the supply chain to optimise availability, as well as delivering “robust” IT.

Majestic will also trial the sale of single bottles. It previously only sold them by the dozen before cutting this to six in 2009.

From mid-May to late August, Majestic has removed the minimum purchase policy in six UK stores - Belgravia in London, Newcastle, Darlington, Northallerton, Durham and Hexham.

The minimum purchase requirement of six will stay in the remaining 207 stores. For online orders and free delivery from the six test stores, the threshold of six bottles will also remain in place.

Analysts have argued for the threshold being cut again or scrapped, pointing out that the previous occasion this was done was the last time Majestic saw sizeable sales volume rises.

Today’s results showed Majestic’s number of active customers who made purchases during the year up 5.4% to 678,000 and average spend per transaction unchanged at £129. Average price per bottle rose to £8 from £7.94.

Online sales rose 12.4% to £31.1 million, now representing 12.1% of UK retail sales. Total revenue was up 2.3% to £284.5 million.

Chairman Phil Wrigley said: “Despite the challenging backdrop of a fiercely competitive environment, we continued to grow market share, by 0.1% to its highest ever level at 4.3%.”