Naked Wines' post-pandemic prospects mixed as it returns to profit

Investors reacted to Naked Wines’ (WINE) half-year results as though they were suffering through a hangover. The direct-to-consumer wine group’s shares fell 11 per cent as it announced a return to profit, but sales growth of 6 per cent on a constant currency basis came in below analyst expectations.

New customer numbers fell compared with the same period last year, the latter boosted by the pandemic ecommerce trend. The drop wasn’t for lack of trying. Around £21m was spent on investing in customer acquisition, which delivered a five-year forecast payback of 1.7 times on investment against last year’s 3.9 times. The capital commitment delivered poorer than expected results due to “market environment” issues and higher digital marketing costs. In more positive news, the group’s ‘Angel’ subscribers – who pay regular fees – increased by 25 per cent to 947,000.

The group’s main revenue driver remained its US market. But sales fellas the States returned to a form of social normality more quickly than other markets. Despite this, Naked’s US market share grew to 1.1 per cent, up from last year’s 0.9 per cent, according to NielsenIQ.

The US sales drop isn’t the best sign for the online wine seller’s post-pandemic prospects. Peel Hunt forecasts adjusted EPS of minus 6.3p for the full fiscal year and 1.3p next year, against FY2021’s minus 0.5p. While Naked is moving in the right direction, we have not yet been brought around. Sell.

Last IC view: Sell, 248p, 21 Nov 2019