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Majestic at "tipping point" as sales rise but profits fall

Published:  17 November, 2016

Majestic faces a challenge to turn sales into profit if they are to deliver their target of £500m in sales by 2019.

In the wine retailer's interim results released today, the business is showing growth with underlying sales up nearly 10.6% from £182m to £206m for the first half of the fiscal year.

Profits are way down however, with total half-year losses of £4.4 million once an adjustment for the Naked Wines deal is made.

The company said this was a "tipping point" in its return to profit growth and re-affirmed it is on track to reach its target set out in its three-year "transformational plan" to 2019.

In its results, the company said: "From now on we are confident that future sales growth will translate to profit growth, because the step change in fixed cost growth is complete [and] we are aiming for - and look like we are achieving - sustainable sales growth.

"We are only one year into a three year plan, so it is too early to draw conclusions, but we are seeing encouraging signs."

Majestic suffered a setback in September when it issued a profit warning.

Shares plummeted as Majestic warned that profits are expected to fall far below expectations in 2017.

This was mainly due to a failed marketing campaign during a roll out of Naked Wines in the US.

Majestic Retail contributes the majority of the company's sales, with like-for-like sales growing a solid 5.7%.

Managing director John Colley, who is responsible for Majestic's 211-store estate, told Harpers that retail is keeping sales momentum going.

"We reached a road-hump in US with our roll-out of Naked Wines, but retail in the UK and the US is more than compensating for that. 70% of total sales came from retail and 5.7% like-for-like sales show that this plan is working."

Majestic said its plan to invest in people and marketing rather than opening more stores has paid off with increased sales, but MD Rowan Gormley is now faced with the task of turning those sales into tangible profit.

"This is a confident report and Majestic clearly feel they have turned a corner following the profit warning in September," Joshua Raymond, market analyst at XTB said.

"They are fixing the leaking roof and investing in the business for the long term, and sacrificing a few quarters for the sake of it

"Any long-term shareholder should normally be pleased by this but the question is going to be about how forgiving they are following negative rhetoric in previous reports, failed marketing initiatives and a profit warning."