Majestic Wine boss declares ambition to sell entire retail estate this summer
Majestic Wine chief executive Rowan Gormley has confirmed that the group intends to sell the entire Majestic business after deciding Naked Wines offers greater growth potential.
He said it is in advanced discussions with several bidders, as Waterstones owner Elliott Advisors gatecrashed the process this week.
Gormley was installed as chief executive of the enlarged group when Majestic bought Naked Wines, the company he founded, back in 2015.
He has overhauled the business during his four years at the helm, but Majestic and Naked were never natural bedfellows and the leadership team has taken the decision to sell off the 200-strong retail estate and focus on ecommerce opportunities in the UK, the US and Australia. Fine wine division Lay & Wheeler will also be sold off in a separate transaction.
If it cannot complete a sale this summer, it intends to continue to run Majestic independently through the Christmas and New Year trading season before restarting the process in 2020.
Gormley said: “We are at a crossroads in the company’s history. As laid out in March, we have taken the difficult but important decision to focus on Naked and exit from Majestic. As at the date of this announcement, our intention is to sell the business and we are at an advanced stage with multiple bidders.
“A further update will be provided if and when negotiations conclude at which point we will seek shareholder approval to move ahead. If we are unable to complete the process over the summer, in time for the important Christmas and New Year season, we will continue to run the two businesses independently of each other and look to restart the process in 2020.”
The South African entrepreneur claims that the group is making this decision “from a position of strength”.
Group sales grew by 6% to £506 million in the year to April 1, 2019. The Majestic arm was the largest part of that, as revenue increased 1.5% to £267.7 million. However, Naked Wines enjoyed 14.5%, suggesting that it has a brighter future ahead of it.
The group slumped to a full-year, pre-tax loss of £8.5 million, a significant reduction from the £8.3 million profit before tax delivered the previous year. That was down to investment in the growth of Naked, weaker retail trading for Majestic and a non-cash impairment charge of £11.1 million relating to the Majestic estate.
“Although underlying profits fell, the biggest cause was a decision to increase investment in new customer acquisition in Naked, which will drive future growth,” said Gormley.
Selling Majestic will strengthen its balance sheet considerably as it plans to invest in new customer acquisition for Naked.
“Our balance sheet remains strong with leverage of only 0.8x adjusted EBITDA,” added Gormley.
He referred to Majestic as a great business, blessed with brilliant people and strong customer loyalty, while insisting it is in a much better position than it was when he joined four years ago. Yet the group has still decided to offload it.
“Naked has the greater potential for growth, and will deliver the best results for our shareholders, customers, people and suppliers over time,” said Gormley. “Although we have several options to realise value from Majestic, the cleanest and best for customers, staff and shareholders currently looks to be an outright sale at this time.
“Majestic Wine started life with a disruptive model that challenged the status quo. Now is the right time to do it again under the Naked brand.
“We’ll operate a much simpler business with one brand and one business model. We’re well-resourced, have a clear focus on growth, and we believe we can accelerate investment to build a bigger, more profitable business in the longer term.”
The future is very much Naked for this business, and it is in discussions to sell Majestic and Lay & Wheeler in separate transactions.
“We have had a difficult decision to make,” said Gormley. “We have two great companies, Naked and Majestic. Both of them have the potential for growth, but we only have the resources to do one well. If we tried to back both to be long-term growth engines we risk delivering neither.”
In the end it chose Naked because it is established in the potentially lucrative US market, it is a digital business and it is “differentiated and defendable”.
If it is successful in selling Majestic in the months ahead, it will change its name to Naked Wines PLC, but it will remain a listed company.
Sale proceeds would be used to pay off debts and invest in new customer acquisition, while any surplus would go to shareholders.
Gormley added: “I want to thank from the bottom of my heart, the wonderful people of Majestic Wines, who have done an amazing job of delighting our customers, at the same time as we have implemented radical changes, all with great cheerfulness and engagement.
“You are a wonderful group of people and have faced into the uncertainty of the past few months with the dedication and commitment that has made the last four years a pleasure.”