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Majestic H1 results: profits drop 50% as company launches turnaround plan

Published:  16 November, 2015

Majestic plc's first-half results show that profits dropped by 50% for the 26 weeks to September 28, 2015, with profits before tax sliding to £4.3m, down from £8.5m for the same period the year before.

These are the first results announced since Rowan Gormley became chief executive of Majestic in April this year.

Gormley remains optimistic, however. He attributed the drop in profits to a number of key strategic investments which are part of a three-year turnaround plan, as well as to costs associated with the acquisition of Naked Wine during the trading period.

He said: "Six months in to my new job, it is clear to me that we have a solid core business at Majestic, and two great growth engines in Naked and our commercial business.

"We have a clear plan, which will require investment and take three years to complete, but it will also deliver a better business that can create sustained growth in shareholder value."

The profit downturn was expected, he said.

"Profit for the current year is expected to be impacted by the increased investment derived from our successful test period, after which we expect to see sustainable growth as the anticipated returns from our initiatives are realised."

Sales for the first half of the year are up 36% year on year from £133.8m to £181.6m.

Gormley's efforts have been focused on Majestic's retail stores.

The challenges he has addressed include making Majestic easier and simpler for customers to shop in-store. This included dropping the six-bottle minimum purchase and a clear pricing strategy for customers.

These changes were in an effort to turn around like-for-like sales in mature stores, which have been in decline since 2011.

They are now trending upwards again.

"I am encouraged about the changes we have made," Gormley said. "Our core retail business grew sales by 5% to £112m, with like-for-like sales growing at 2.3%, the number of new customers advancing by 7%, and conversion from new to repeat custom continuing to improve.

"This strong performance only translated into a 4% increase in profits, as costs increased ahead of inflation, a legacy of the store opening programme.

"I am especially pleased that we saw positive growth even in mature stores, which have been suffering negative like for likes for some time, reflecting the initial strategic actions put in place."

Gormley also identified store manager turnover as an issue that needed addressing. "Turnover of store managers, who are the backbone of our retail business, is unacceptably high at 23% per year and needs to be improved."

Looking forward

The company is looking to reduce its target number of UK stores from 330 to 230. It currently has 211 operating in the UK.

Instead, Gormley wants to use the money to invest in acquiring and retaining customers - potentially through online channels and by growing Majestic's B2B commercial business.

"We have lessons from Naked Wines that can be applied to Majestic, inducing how to recruit new customers," he said.

Gormley also confirmed that Naked Wines had trialled a limited project of doing door-to-door sales in an effort to get new customers, but it did not achieve the desired results.

For the Lay and Wheeler fine wine arm of the business, Gormley emphasised that despite the company not being largely "material in terms of numbers", its monthly subscription model is a core part of the business. 

"We want to reposition the business away from focusing on en primeur- which can be unreliable. For good years we may invest, like 2015. But it is more the icing on the cake," said Gormley.

Phil Wrigley, the chairman of Majestic plc, is also confident the right leadership team is in place to help grow the business moving forward.

Wrigley said: "We have strengthened the non-executive board with the addition of Anita Balchandani, who as head of retail at OC&C brings great insight and perspective, and Greg Hodder, chief executive of Charles Tyrwhitt, who brings a wealth of experience in multi-channel retailing.

"Justin Apthorp will retire from his role as buying director after 13 years of leading the buying team and will remain on the board as a non-executive director."