Naked Wines shares tumble on sobering outlook

Naked Wines, the online retailer, lost nearly 40 per cent of its market value on Thursday after it warned of “greater uncertainty” in the economy.

The Norwich-based company, which connects shoppers with independent winemakers, reported signs of waning customer retention and slower growth. Its share price fell by 37 per cent on Thursday morning to 176p.

The sobering outlook came after Naked Wines benefited from an increase in wine purchases during the pandemic lockdowns.

Nick Devlin, chief executive, said the business had “fallen short” of its goal to convert upfront investment into new customers who become loyal members.

He said the main challenge has been dealing with “volatile” consumer sentiment, as countries emerge from lockdown and as consumers begin to feel the pinch from inflation.

“There are elements of how we have handled this where we could have done better,” he said, pointing to how the retailer should have mitigated sooner the inflationary pressure on customers.

Naked Wines said that in the year to the end of March, it experienced a customer retention rate of 80 per cent, down from 88 per cent the previous year.

The merchant reined in marketing spend on occasions as a result of inflation, which might have affected its ability to acquire more new customers.

Its business model entails heavy upfront investment in acquiring subscribers on the premise that their loyalty to the brand will more than repay the costs of recruiting them over time.

Wayne Brown, an analyst at Liberum, said the company’s forecasts for 2023 reflected “the poor quality of customers acquired [in the last financial year]”And said the balance sheet was also a concern.

“There is a risk heading into a downturn that weak demand and potential cancellations combine to force the company to discount stock more in an attempt to turn the inventory into cash,” he wrote in a note to clients.

Russ Mold, a director at investment site AJ Bell, said the lockdown trend for customers to make regular wine orders might not persist. “Whether that pull still remains now household budgets are squeezed and people have the option of going out for a drink is open for debate,” he added.

Despite the headwinds, the wine merchant swung back to a profit of £ 2.9mn in 2022, reversing a £ 10.7mn loss from the year before, as total sales increased over the period.

But margins were squeezed by higher storage, transportation and logistics costs in the US and UK, the company said.

It guided that sales were expected to be in the range of £ 345mn to £ 375mn in the year ahead, forecasting that sales growth would accelerate over the period. The company said investment in acquiring new customers was likely to be between £ 30mn and £ 40mn and it said it was expected to “manage to on or around a break-even adjusted ebitda.”

Naked Wines was acquired by Majestic Wine in 2015, which at the time had a number of outlets on high streets. The company sold the stores, however, to private equity firm Fortress in 2019, to become an online-only business under the brand Naked Wines.

Its founder, Rowan Gormley, unexpectedly left the business shortly after, handing over to Devlin.

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