Naked Wine slumps on disappointing figures

Online wine retailer Naked Wine (LON: WINE) had a good Covid lockdown but it is finding it difficult in more normal times. Although a £3m pre-tax profit was reported for the year to March 2022, Naked Wine is set to fall back into loss this year.

Subscriptions boomed when people had to stay at home and could not go out to buy wine or drink in pubs and restaurants. Once signed up the new Angels (subscribers) were expected to continue to be subscriber members.

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However, economic uncertainty and inflation mean that ending a Naked Wine subscription could become a way of saving money that is required to cover higher energy and food prices. Last year, repeat customer sales retention fell from 88% to 80% and it is lower than the year before the pandemic. There was a 9% increase in active Angels to 964,000, though.

The five-year forecast payback of the investment in acquiring new customers has declined from 2.6 times to 1.5 times. The year one payback has declined from 82% to 68%.  

In 2021-22, US sales fell but were slightly higher in constant currency terms, while UK sales were 10% ahead. The US improved its profit contribution, but only because less was spent on acquiring new customers.

Even last year, people were taking up the introductory offer and then cancelling memberships and there is a new customer recruitment strategy in the UK. The plan is to attract fewer new Angels but improve the quality of customer added. More is being spent on brand marketing and that may help.

Forecast

Peel Hunt has downgraded its 2022-23 expectations from a £1.3m pre-tax profit to a £6.9m loss, even though revenues are forecast to improve from £350.3m to £375.2m, which is at the higher end of the guidance range.

The balance sheet is strong with £39.8m in the bank even though inventories were increased from £76m to £142m. There is a new $60m credit facility.

The share price has fallen by 36.7% to 182p on the back of the 2021-22 results. This shows how unforgiving the market is to even small disappointments.

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