Majestic Wine issues profit warning after botched US marketing campaign

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Shares in Majestic Wine closed down by more than almost a quarter today after the booze merchant issued a profit warning, citing challenging trading conditions and a failed marketing drive in the US.

The firm was expected to post £440m of revenues in the year to March 2017, up 10 per cent on its sales in the most recent financial year. Pre-tax profits were predicted to be £16.1m, up on last year's £4.7m.

This morning, Majestic said it is expecting to fall short of that target, though did not indicate how severe it expects the miss to be. Majestic cited weakness in its commercial arm, with sales flat and margins falling, and a failed acquisition drive for its Naked Wines brand in the US, which will see the crowdfunding arm for independent vineyards tip back into the red after posting a profit last year.

Shares closed down 23.9 per cent, with a slice of the company swapping hands for 330p.

Majestic had pinned its hopes on a direct marketing campaign to win customers in the tricky North American market, though it was forced to admit "the direct mail channel has not proved to be as viable as early tests suggested", citing a £2m setback.

Chief executive Rowan Gormley said it was "very disappointing that two isolated factors" had distracted from "great" progress across the group. He added that the firm's dividend was not under threat and it was still on track to grow sales from £400m to £500m by 2019.

 

Read more: English winemaker Chapel Down fizzes on US launch

Gormley told City PM: "We have always made it clear that we are a test and learn organisation. If you're testing and learning there are going to be failures. 

"It would be unreasonable to expect every test to be effective."

He added: "The markets reacted quite dramatically to this today, but in business it's not that unusual if you open 10 shops for one not to work."

Separately, drinks giant Diageo said it does expect to hit expectations this year, citing strong performance across the business. The company is preparing to announce significant cutbacks at its Park Royal complex in northwest London, where 1,500 staff are currently located, as part of a productivity drive.