Warpaint looking to expand online channels

Anyone who has visited a department store or supermarket recently will know that the cosmetics counter is a crowded place. Legions of brands jostle for consumer attention, in a quest to become the next big thing.  

Affordable cosmetics company Warpaint (W7L) is holding its own. After several years of falling profits, the group has reported robust revenue and profit growth. In the UK, sales have risen by 20 per cent to £25.3mn, while international revenue – mainly generated in Europe – has increased by 29 per cent to £24.7mn.

There are encouraging signs for the future as well. Warpaint’s W7 brand – which accounts for over half of group revenue – has recently launched in Boots. W7 products are also sold in 1,400 Tesco stores, up from just 56 in February 2020. Management is now striving to make headway in America, deploying a new sales team to tap into the “largest colour cosmetic market in the world”. Its cash position means it is well placed for such investment. 

Warpaint’s accounts do set off some alarm bells, however. Despite repeated lockdowns, and a surge in online shopping, ecommerce accounts for just 2.7 per cent of total revenue. The group is hoping to develop sales across Amazon platforms, but this strategy has yet to bear fruit, although the potential is clear enough.  

Macroeconomic pressures could also prove troublesome. As the cost of living squeeze continues, consumers are unlikely to have as much disposable income to spend on make- up. (Management did suggest, however, that Warpaint products will appeal to cash-strapped customers in search of  cheaper alternatives to the likes of Rimmel and L'Oréal.)

While Warpaint seems to be on an upward trajectory, its profits are still small and it is battling with inflation, fickle consumer taste, and fierce competition. Hold.

Last IC View: Hold, 113p, 30 Oct 2018