Shares in Virgin Wines (VINO:AIM) shed 22.5% to trade at 155p after the online wine retailer warned sales and profits for the year to June 2022 are now expected to be ‘slightly below’ consensus estimates amid increased cost pressures and an ‘uncertain trading and macro environment’.
Also weighing on the direct-to-consumer online wine purveyor’s outlook are the weaker than expected new customer recruitment it experienced in the second quarter and some impact from Omicron-linked labour shortages over Christmas.
LAPPING TOUGH COMPS
During the half to December 2021, Virgin Wines sales were flat at £40.5 million as the lockdown winner lapped a demanding prior year comparator, although sales were an impressive 55% ahead on a two-year basis.
In today’s statement, Virgin Wines conceded customer acquisition proved ‘more challenging’ in the latest half, which saw ‘lower visitor numbers driven through individual partner offers and a reduction in response from paper-based activity’.
While the number of new customers acquired has fallen below expectations, Virgin Wines stressed ‘the quality of customer acquired has remained high, maintaining strong conversion rates’, and low cost customer acquisition in turn ‘continues to drive high levels of payback’.
The Norwich-headquartered company also estimates it lost around £800,000 worth of festive sales because of Covid-induced labour shortages, which forced the business to ‘cut off’ for Christmas delivery two days earlier than planned to ensure all customers received their orders.
WRIGHT REMAINS OPTIMISTIC
The positive news is sales in its flagship WineBank subscription scheme remained very strong, up 28% year-on-year, while the commercial arm is trading ‘significantly ahead’ of expectations.
First half commercial sales bubbled up 25% year-on-year with a boost from high profile partnerships with Moonpig (MOON), Virgin Money, Avanti and LNER.
In addition, Virgin Wines remains robustly financed with £13.6 million net cash in the coffers at last count.
Chief executive Jay Wright said the trading environment has ‘evolved considerably’ over recent months and given strong prior year comparatives, his charge has ‘worked hard to maintain encouraging growth from our core sales channels, whilst maintaining strict discipline around our customer acquisition and our cost control.
‘This performance continues to reflect the strength of our award-winning consumer propositions, the ongoing loyalty of our existing customers, the quality of our wines and our growing reputation for outstanding customer service.’
Wright added that the customers acquired during the Covid lockdown period ‘continue to perform strongly’ and despite short-term headwinds facing the business, he looks forward to the future ‘with optimism. We have a range of leading consumer propositions with more and more people experiencing the benefits of buying delicious, great value wine online through our subscription models. We also have strong growth in our commercial channel and a clear strategy for continued long term, profitable growth.’
THE LIBERUM VIEW
Liberum Capital is sticking with its ‘buy’ rating on Virgin Wines, though it has lowered its price target from 300p to 260p to reflect downgraded estimates.
The broker argues the business remains ‘very well positioned through its unique open sourcing model and has total control over price/mix (majority of sales come from pre-mixed cases), leaving it well placed to deal with inflationary pressures.’
Liberum also pointed out Virgin Wines plans to ‘continue to develop its corporate and gifting channels as well as its range of beers and spirits. The group is aiming to more than double the size of the business in less than five years and has the infrastructure in place to deliver this.’
