Wednesday 24 January 2018 ShareProphets: The one stop source for breaking news, expert analysis, and podcasts on fast-moving AIM and LSE listed shares

Majestic Wine – Christmas Trading Statement sales numbers appear promising, but are they?

By Steve Moore | Tuesday 10 January 2017

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from ShareProphets). I have no business relationship with any company whose stock is mentioned in this article.

A “Christmas Trading Statement” from Majestic Wine (WINE) notes an underlying sales increase of 12.4% for the 10 weeks ending 2nd January. Sounds promising…

However, “the group's gross margin percentage was around 1 percentage point lower, versus the same period in the prior year, due to a combination of accelerated acquisition of new customers and the need to remain competitive in a heavily discounted UK market still coming to terms with recent currency movements”. The combination is noted to see profit “expected to be in line with market expectations”.

It should though be remembered that these are expectations significantly downgraded on the back of a far from majestic “Trading Update” from the company in September – brokerage Panmure Gordon, for example, having reduced its full-year earnings per share expectations by approx. 24% to sub 13p and by approx. 18% for next year to sub 19p.

On the back of the latest trading numbers and CEO Rowan Gormley emphasising “our transformation plan is working”, the shares are currently approaching 7% higher and 350p. This though compares to comfortably above 400p before the September profit warning, with the latest announcement also including on margins that at this stage the company is not predicting a change to long term expectations, “but we need to retain flexibility to compete in a competitive market”.

Hmmm. It will be interesting to see how this plays out in the AIM short positions table in the forthcoming weeks, but the current valuation against the outlook sees me currently remain bearish here.

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