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Majestic Wine Plunges as Dual Setbacks Lead to Profit Shortfall

Published on Sep 21 2016 10:52 AM in Drinks tagged: UK / Wine / USA / Naked Wines / Majestic Wine

Majestic Wine Plunges as Dual Setbacks Lead to Profit Shortfall

Majestic Wine shares fell the most since their market debut almost 20 years ago as the UK drinks retailer said profit will be hurt by setbacks at home and in the US.

The stock’s slump of as much as a third slashed the company’s market value by £101 million to £205 million.

Majestic has run into difficulties in two areas outside its main UK retail business, both of which it has previously described as "growth engines."

At its commercial unit, which supplies wine to bars, restaurants and corporate clients, business conditions are getting tougher as the company increases spending to win customers. Naked Wines, an online platform for wine enthusiasts acquired last year, had a reversal in the US after a direct mail campaign failed to produce the expected results and was withdrawn.

"It is unlikely that commercial will bounce back any time soon," Peel Hunt analyst John Stevenson said in a note. The setback at Naked Wines is a "one-off, but one-offs in the U.S. do not come cheap," and will reduce profit by £2 million, he said.

The troubles mean earnings before interest and tax are likely to fall short of analyst estimates for the year ending April 3, Majestic said. Stevenson cut his estimate of pretax profit to £12 million from £16 million. He also lowered next year’s projection to £20 million from £23 million.

Majestic has started an internal review of the commercial business, Chief Executive Officer Rowan Gormley said. The company’s retail unit is “on track and making good progress,” while the Naked Wine businesses in the UK and Australia are performing well, he said.

Together, the commercial unit and Naked Wines account for about 37 per cent of the company’s revenue.

Majestic said it still expects to resume dividend payments this year and to deliver a goal of £500 million of sales by 2019.

News by Bloomberg, edited by Hospitality Ireland

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