15th Dec 2023 16:47
(Alliance News) - Naked Wines PLC shares rose on Friday, although one analyst noted that this was despite downbeat revenue performance, while another said some optimism could be found in its core customer base and outlook.
The Norwich-based online wine seller said in the half year ended October 2 its pretax loss widened to GBP9.7 million from GBP215,000 the year before, due to an impairment of non-current assets of GBP11.5 million.
Revenue fell by 20% to GBP132.3 million from GBP165.8 million a year earlier, driven by a 16% reduction in repeat customer sales, Naked Wines explained.
Shares in Naked Wines were up 9.3% to 47.57 pence each in London late Friday.
"The positive share price bump is likely more a sigh of relief that things weren't worse," said Hargreaves Lansdown analyst Sophie Lund-Yates.
"Potentially more worrying is the double digit decline in repeat revenues, which shows that what should be loyal customers are dropping off. This is a combination of belt-tightening and fierce competition in the online-wine-world.
"The group's struggled post-pandemic after the demand surges seen in lockdowns, and issues including attracting new customers and inventory levels have caused problems. The group’s seeing losses from both pipes of the revenue funnel, with both existing and new customers proving fickle and elusive, which makes for an uphill battle."
Looking ahead, Naked Wines left its guidance unchanged, anticipating adjusted earnings before interest and tax in the range of between GBP2 million and GBP6 million. In the financial year ended April 3, adjusted Earnings before interest, tax, depreciation and amortisation was GBP16.3 million.
However, the firm lowered its outlook. It predicts annual sales for the year ending March 28 will fall between 12% and 16%, from GBP354.0 million a year prior.
Edison struck a less worrisome tone for Naked Wines than Hargreaves Lansdown's Lund-Yates, particularly on outlook and the "resilience" of its core customer base, while claiming Naked Wines' first half was "as anticipated" alongside some "robust progress on costs".
Lund-Yates also said cost-cutting was helping Naked Wines's bottom line, "but not enough and it can't go on forever - a meaningful increase in customer activity will be needed sooner or later".
First half cost of sales fell to GBP78.9 million from GBP93.3 million, fulfilment costs fell to GBP25.8 million from GBP32.3 million, advertising costs fell to GBP7.4 million from GBP10.0 million, while general and administrative costs fell to GBP18.7 million from GBP27.1 million.
Edison left its estimates for Naked Wines's financial 2024 unchanged, saying trading since November has been "satisfactory", with order volumes in November and December consistent with revised guidance.
"While Naked Wines is clearly facing into challenges, we highlight the continued resilience/loyalty of its core customer base - Repeat customer attrition has hit an all-time low (33%) and spend per Angel increased in each market (even if at a slower rate than historically)," said Edison analysts Andrew Wade and Grace Gilberg.
"The big question for the business remains whether or not it can efficiently recruit sufficient customers to return to growth. Some early green shoots are being seen, with the UK returning to a stable membership base in recent months, and Naked testing 'a number of improvements to drive payback and help access a wider demographic'. It appears that 'at least one of the ideas is a winner' and Naked is currently testing at scale over peak."
Jefferies rates Naked Wines at 'buy', but cut its target price to 95 pence from 105p.
By Greg Rosenvinge, Alliance News senior reporter
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