- Online wine purveyor reports earnings plunge
- Launches full business review
- But customer base remains strong, new partnerships performing well
Shares in Virgin Wines (VINO:AIM) fell 8% to 44.7p, leaving them 65% lower over one year, after the online wine retailer uncorked a 97% plunge in pre-tax profits for the half to December 2022.
Given the shift in consumer confidence over the past 15 months, with the pandemic-driven online ordering having fizzled out and cost-of-living pressures impacting consumer spending, Virgin Wines said it has launched a business review to ‘identify new initiatives for future growth and profitability’ and help it capitalise on opportunities as the cost of living crisis eases.
WHY HAVE THE SHARES COLLAPSED?
Investors have struggled to toast the direct-to-consumer online wine purveyor over the past year as the shares have slumped due to earnings downgrades.
Norwich-headquartered Virgin Wines had already issued a profit warning in January highlighting the 17% year-on-year decline in revenue to £33.6 million due to internal logistics issues encountered over Christmas and with postal strikes and bad weather crimping demand.
Pre-tax profits slumped 97%, from £3.2 million a year earlier to a mere £100,000.
However, there was some relief as Virgin Wines reiterated full year guidance for revenue of around £63 million and earnings before interest, tax, depreciation and amortisation (EBITDA) of between 4% and 5%.
Management also insisted the business remains profitable, while trading in January and February was broadly in line with expectations thanks to ‘consistently resilient demand’ from Virgin Wines’ loyal customer base.
WHAT DID THE CEO SAY?
CEO Jay Wright stressed that his charge recruited over 60,000 new customers during a tough first half and continues to make progress on ‘addressing the challenges where we can’, with management remaining confident in the Virgin Wines’ future growth prospects.
‘This is underpinned by the fundamental strength of our business model and consumer proposition,’ said Wright, ‘with our customers remaining loyal and ever-increasing numbers signing up to our WineBank subscription scheme.
‘Furthermore, our exciting new strategic partnerships continue to be a key focus in helping to introduce our brand’s unique, high-quality products and service to new customers every day.’
EXPERT VIEWS
Russell Pointon, director of consumer at Edison, noted that despite these disappointing results, ‘new customer growth was good and senior management remains optimistic that its partnerships with Moonpig (MOON), Avanti West Coast, LNER, and Great Western Railway will drive revenue through its B2B channel.
Pointon added: ‘Whilst the group remains strongly committed to its customer acquisition strategy and expanding its B2B revenue channels, investors will be keeping a close eye on the company’s financials to determine whether January’s profit warning was a one-off event and if a potential rebound in consumer spending will support a better second half of the year.’
Liberum Capital, which has a ‘buy’ rating and 100p price target, said Virgin Wines has ‘maintained its very strong cash position, is debt free and holding an appropriate level of inventory. This provides the scope to assess new opportunities to invest in growth in what has become a significantly different consumer environment to that of 18 months ago.’
