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Shares plunge 25% at Majestic following profit warning

Published:  21 September, 2016

Shares of Britain's largest specialist wine retailer plummeted this morning following an announcement from the company that it expects profits to fall far below expectations in 2017.

Majestic Wine PLC attributed the lacklustre forecast to problems in its commercial business and a bungled attempt to its roll out a Naked Wines postal campaign in the US.

Connor Campbell, senior market analyst at Spreadex, said: "It looked like someone at Majestic Wine had smashed a crate of claret over its chart this morning, with the stock plunging nearly 30% as it warned of a potential earnings shortfall in its commercial division as well as a costly failed advertising campaign for its Naked Wines as it attempted to break into the US.

"At the time, the Majestic Wine/Naked Wines merger was celebrated as a savvy consolidation of the two companies. However, now it looks like CEO Rowan Gormley, who took the reins when his Naked firm was brought on board, may be pushing the company to expand too quickly, resulting in the direct mail mess in the US."

Majestic Commercial has failed to generate sales, with profit growth reaching just 1% for the year to March 31.

The company said that the first half of the current financial year has proved to be "even more challenging" with the result that commercial sales growth is flat year-on-year.

If these negative trends persist through to the end of this financial year, - April 3 - the commercial division's earnings before interest and tax (EBIT) could be around £2m lower than expectations.

In the US, Majestic tested a number of new initiatives, including a direct mail campaign which was particularly disastrous for the company.

The campaign attracted significantly fewer customers than expected and as a result, the Naked Wines business is expected to move back into making a small loss for the current financial year with an EBIT performance also approximately £2m lower than expectations.

Chief executive Rowan Gormley, blamed the scale of the US market for having a significant impact on results, despite an overall positive performance.

"It is very disappointing that two isolated factors are distracting from the great progress across the rest of the Group. We have always said that we would adopt a test and learn approach, and be quick to redeploy capital from underperforming areas, which is exactly what we are doing.

"While this approach is delivering good results in the other business units the scale of the US market means that even a test can have a material effect on profits," he said.

He added that despite the troubles, Majestic is still on track to resume dividend payments this year and to deliver their goal of £500m sales by 2019.

A further update will be given at the time of the Group's interim results on November 17.