A challenging time for Naked Wines

Naked Wines’ (WINE) shares plunged on the back of these results, leaving nervous investors reaching for the nearest bottle of vino. Despite a return to profit, the market was spooked by the direct-to-consumer wine company’s outlook – management now expects only a break-even adjusted cash profit for financial year 2023 – and less than impressive key performance indicators (KPIs).

Revenue rose by 5 per cent on a constant currency basis as existing customers put in a shift, with repeat customer sales growing by 13 per cent to £315mn and the number of "active angels" (wine club members) up by 9 per cent to 964,000. Further down the income statement, lower advertising costs helped the company back into the black.  

But a fall back in KPIs is a major concern. The five-year forecast payback for new customers fell from 2.6 to 1.5 times, which management is “disappointed with”.  Repeat customer sales retention was down by 800 basis points to 80 per cent, and investment in new customers plummeted by almost a fifth to £41mn, which won't help with generating demand in a tough period for consumer spending.

Chief executive Nick Devlin said “we will not pursue growth at any cost, and our guidance is that we intend to trade the business at or around break-even this year”. The company said that it expects 2023 sales to come in at £345mn to £375mn, which represents at least a 5 per cent cut against consensus revenue estimates of £397mn, according to FactSet.  

Liberum analysts said that the company’s “success in the first months of the pandemic is gradually trending towards being just a Covid bump, with the company again struggling to attract quality new customers”. The broker cut its target price from 280p to 150p, which sums up the challenging outlook for Naked Wines. With a build-up of inventory and a new credit facility adding covenant risks, we aren’t budging. Sell.

Last IC View: Sell, 544p, 18 Nov 2021