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Shares of Naked Wines plunge more than 40% as retailer sees weak sales growth

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Naked Wines shares plunge 45%: Online retailer described as a ‘pandemic winner’ reveals weak sales growth and cost pressures

  • Naked Wines revealed annual sales rose just 3% to £350.3 million last year
  • Boss Nick Devlin stated the company would not ‘pursue growth at any cost’
  • The company’s subscriber base – known as ‘Active Angels’ – has risen to 964,000

Online retailer Naked Wines saw its shares plunge after the reopening of catering establishments led to a slowdown in the group’s sales.

The Norwich-based group revealed total revenues for the year to March 28 were up 3 per cent to £350.3 million, as growth in repeat consumer purchases only just outpaced the decline in new business.

It added that sales this year at constant exchange rates could fall as much as 4 percent due to the current economic uncertainty, ongoing cost pressures in all markets and flat revenues in the new customer segment.

Weak growth: Naked Wines revealed annual revenues are up just 3 percent as the increase in repeat consumer purchases just outpaced the decline in new business

Chief executive Nick Devlin stated that the company would not “pursue growth at any cost” and would instead seek to trade at or around breakeven levels this fiscal year.

Following this announcement, Naked Wines Shares tumbled 45.9 per cent to 155.6 pence by the end of Thursday afternoon, although the company also reported it would swing back to a pre-tax profit of £2.9million.

By comparison, the loss had nearly doubled to £10.7 million the year before, as a result of increased transport and logistics costs and rising advertising spending, particularly in the UK and the US, to attract more customers.

Fulfillment, general and administrative expenses continued to rise last year, but the company avoided a loss by cutting its advertising budget by £7.1m in response to weaker paybacks from new customer groups.

The subscriber base – known as “Active Angels” – has grown from 580,000 to 964,000 in 2020, while the number of recurring customer purchases has increased by 81 percent during that time.

Many signed up because Covid-19 restrictions meant that pubs, bars and restaurants were temporarily closed, and socializing with people from other households was banned or severely restricted.

The size of Naked Wines' subscriber base - known as 'Active Angels' - has risen from 580,000 to 964,000 in 2020, while repeat customer purchases have increased by 81 percent

The size of Naked Wines’ subscriber base – known as ‘Active Angels’ – has risen from 580,000 to 964,000 in 2020, while repeat customer purchases have increased by 81 percent

Inevitably, this led drinkers to buy more of their favorite drinks online, and the group’s total sales have increased by 73 percent over the past two years.

Russ Mold, AJ Bell’s investment director, said Naked Wines was “the definition of a pandemic winner,” aided in part by its business model of connecting subscribers directly to independent winemakers.

But he added: “Whether that appeal still exists now that household budgets are under pressure and people have the option of going for a drink is open to debate.

“If you have the money to spend, the thought of sharing a bottle of wine with friends in a bar, pub or restaurant after a long period of time that option was off the table is undoubtedly appealing.

Significantly, Naked Wines expects to spend a significant amount on customer acquisition in the current fiscal year and break even at best.

“This is a far from ideal message at a time when investors are not in the mood to wait for profit.”

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