Majestic Wine delivers mixed full-year results, cash flows drop

Majestic Wine delivered a mixed set of results as it continued to progress on it turn-around plan but kept its dividend steady in a show of confidence about the future.

Nevertheless, its latest set of financials drew a mixed response from analysts.

For the 53 weeks ending on 3 April the UK's largest wine retailer reported a 15.8% increase in revenues to £465.4m (consensus: £447.9m).

Sales were strongest in its Naked Wines unit, with growth of 26.3% to £142.2m, amid a 28% jump in revenues from the US.

Meanwhile, the Retail unit saw underlying sales improve 5.4% to £258.5m.

Commercial sales meanwhile edged higher by 0.8% to £45.9m.

Despite such growth, the company moved into a reported loss before tax of -£1.47m, down from £4.74m in the previous year.

On an adjusted and underlying basis profits before tax declined 29.2% to £10.9m (consensus: £11.4m).

Significantly, the firm's free cash flows dropped from £13.8m in fiscal year 2016 to £6.2m for fiscal year 2017.

Even so, management highlighted the sharp 51% jump in earnings before tax during the back half of the year, pointing out it was the first period in which transformation costs were fully annualised and benefits were starting to come through.

Eighteen months into its transformation plan, management said the company had "passed the tipping point, both financially and operationally", indicating they had moved out of the 'test and learn phase' of the plan and into the 'roll out' phase, which it said came with less risk and lower investment.

Regarding the outlook, chief Rowan Gormley reiterated the company's goal of £500.0m of sales by 2019 and affirmed analysts' current profit expectations.

"We remain confident about the medium term outlook, despite tough economic conditions, as transformation benefits are coming through and our costs are naturally coming down as a result of us reaching the next stage of the transformation plan," Gormley said.

The final dividend was set at 3.6p, for a full-year payout of 5.1p, in line with Majestic's stated policy of distributing 35% of its adjusted earnings.

Following the results, Phil Carroll at ShoreCap downgraded the stock from 'buy' to 'hold' due to the more uncertain outlook and because the shares "looked up with events".

Alistair Davies at Investec on the other hand reiterated his 'buy' recommendation and 450.0p target on the shares.

Davies said: "A strong profit performance in H2 demonstrates the recovery potential for Retail, with tight cost control going forwards in our view allowing for further profit growth and recovery."

Retail analyst Nick Bubb chipped in sayng: "Today’s finals from Majestic Wine (for the 53 weeks to April 3rd) look weak and a bit messy on the face of it, with some chunky exceptional charges, but the company highlights the much stronger H2 performance."