Virgin Wines was the latest company to fall foul of soaring costs this week. Inflationary concerns, plus lower-than-expected customer recruitment, prompted a profits warning.
The 2021-listed online wine merchant said total revenues in the six months to 31 December were in line with its previous year’s performance at £40.5m and 55% up on its first half. Its WineBank service performed ahead of expectations, delivering a 28% increase in revenue, while subscriptions represented 82% of total revenues.
However, customer acquisition was “more challenging”, with a disappointing number of new customers. Additionally, the company had been affected by “well-publicised, external, macroeconomic factors”, including labour market shortages, staff absences due to illness/self-isolation, freight disruption and inflationary pressures.
The labour shortages forced the business to ‘cut off’ for Christmas delivery two days earlier than planned, which hit sales by about £800k, though it had largely been able to mitigate these pressures through efficiencies.
Due to the uncertain trading and these headwinds, it now expected revenue and profit for the year ending June 2022 to be “slightly below consensus market estimates”.
Shares crashed 24% on Thursday morning to 152p in response, falling well below its float price of 197p per share.
AJ Bell put the weak customer numbers in context: “Virgin Wines has fallen short on signing up new shoppers but says those who are buying wine are ‘high quality’, which implies they are spending well, and they’re loyal. So, two out of three isn’t a bad outcome, given consumers are under pressure from a rising cost of living.”
Liberum cut its target price for the stock from 300p to 260p on the lowered estimates, but added: “The business remains very well positioned through its unique open sourcing model and has total control over price/mix (majority of sales come from pre-mixed cases), leaving it well placed to deal with inflationary pressures.
“Increased investment in new customer acquisition, funded by the strong retention rates and margins from its existing customer base, should support multiple years of high, profitable growth ahead.”