Majestic Wines' margins hit by rivals' aggressive Christmas promotions
Majestic Wine’s share price sank this morning after it revealed that margins took a hit as it invested 50 basis points of gross margin to remain competitive over Christmas.
The retailer reported a like-for-like sales growth of 1.1% during the 10 weeks to January 5, but had to invest in price in the face of aggressive promotional activity in the sector.
Majestic called it a “particularly challenging” festive period.
Shares were down by 14% in early deals, trading at 340p each, and Investec analyst Kate Calvert downgraded her estimate for the company’s 2015 profit before tax by 6% to £22 million.
She said: “Majestic’s Christmas performance has fallen short of our forecast with a far more promotional environment hitting margins.
“With yet another downgrade, concern over strategy and future growth potential is likely to overhang the shares until the actions from the expected strategic update in June start to come through.”
Overall sales – including new store openings – grew 3.7% in the 10 weeks to January 5. Majestic added that in the 40 weeks to January 5 like-for-like sales are now up 2% on the previous year.
Chief executive Steve Lewis said: “Majestic delivered like for like sales growth of 1.1% in a difficult Christmas trading period characterised by promotional activity and we are now focused on delivering our final quarter's trading. We anticipate this competitive pricing environment will continue throughout much of 2015.”