Majestic Wine Warehouse - not a sell after all?

Monday, Nov 02 2009 by

Whether or not you've done well out of this year's rebound in the stock markets, there's no doubt that most people are cutting back – tightening their belts and learning to make do with less. A staycation instead of a holiday in Tuscany; Primark instead of Marks & Sparks; and a bottle of fizzy cider instead of a magnum of champagne.

So it's no surprise that Majestic Wine Warehouse is selling less champagne – a quarter less than last year, in fact. Surely, that makes this stock the biggest sell on the market?

Well, let's reserve judgment on that for a bit and look at the company's recent performance. 2008 saw the first dip in Majestic's profits since it was floated in 1996. The half year saw profit before tax fall by 25%, though total sales crept up 3.4% (largely as a result of store openings rather than organic growth; like-for-like sales  in the five weeks coming up to the results fell by 4.7% [1] .

Full year profits for the year to March 2009 fell 56% - though £5.3m of this was due to a one-off writedown on the value of the French business, Wine and Beer World, which had been hurt by the strength of the euro. (This business addresses the 'booze cruise' market – always highly price sensitive.)

In fact the results weren't that bad once you exclude the one-off item. Pre-tax profits still fell by 22% - but that showed the second half of the year actually improving on the first half, with the decline decelerating. Christmas 2008, in particular, seems to have been a pretty good season, with a 25% rise in sparkling wine sales making up for the champagne shortfall [2] .

The new financial year started well, too, with like-for-like UK sales rising 2% for the ten weeks from 31 March to8  June 2009 [3] .

So far, so good – this is not a retailer in trouble, but just a retailer having a sub-standard year. What has Majestic got that makes it interesting to the investor, then?

Well for a start, it has a fantastic market presence. It has 150 outlets in the UK, but it certainly hasn't saturated the market; it's opening 5-10 stores a year and could probably open more if it could find the right sites. Plus, it has a…

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Majestic Wine plc is a wine retailer. The Company acts as a holding company for its subsidiaries. The Company is engaged in the retailing of wines, beers and spirits. The Company operates through four segments: Retail, Commercial, Naked Wines and Lay & Wheeler. The Retail segment is a customer based wine retailer, selling wine, beer and spirits from stores across the United Kingdom, and online, and also incorporates the Company's French business. The Commercial segment is a business-to-business wine retailer selling to pubs, restaurants and events. The Lay & Wheeler segment is a specialist in the wine market and also provides cellarage services to customers. The Naked Wines segment is a customer funded international online wine retailer. Its subsidiaries include Majestic Wine Warehouses Limited, Lay & Wheeler Limited, Les Celliers de Calais S.A.S., Majestic Wine Employee Share Ownership Trust Limited, Naked Wines International, Inc. and Vinotheque Holdings Limited. more »

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About ragtrader


I'm not just a rag trade investor - basically any company that sells to the consumer is one I'm going to look at. Stocks I've enjoyed holding include Majestic Wine, Sci Entertainment (before it bought Tomb Raider!), Greene King and GUS - quite a range, though alcohol seems to be something of a strong suit! When I'm not investing, or writing about it, I am a coloratura soprano, but my operatic career has so far been limited to my own bathroom. more »

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