City snapshot: Virgin Wines issues profits warning on rising costs

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Online wine merchant Virgin Wines has issued a profits warning due to the “uncertain trading environment” and “increased cost pressures”. 

The 2021-listed group said total revenues in the six months to 31 December were in line with its previous year’s performed at £40.5m and 55% on its first half. 

Its flagship WineBank service performed ahead of expectations, delivering a 28% increase in revenue. It said its subscription schemes are a key driver of its direct-to-consumer sales channel which represented 82% of total group revenue in the period.  

Total subscription revenue accounted for 79% of D2C sales in the period, up from 69% in the first half 2021. 

It added that the commercial arm of the business continues to “perform well”, trading significantly ahead of expectations, driven by partnerships with Moonpig, Virgin Money, Avanti and LNER, with sales in the Period up 25% on the first half. 

However, during the Period customer acquisition has been more challenging with lower visitor numbers driven through individual partner offers and a reduction in response from paper-based activity. This has led to the number of new customers acquired falling below expectations. 

Additionally, it said it has been affected by “well-publicised, external, macroeconomic factors”, including labour market shortages caused by the emergence of the Omicron Covid-19 variant, staff absences due to illness/self-isolation, freight disruption and inflationary pressures.  

The effect of the labour shortages was that the business had to ‘cut off’ for Christmas delivery 2 days earlier than planned to ensure all customers received their orders, negatively affecting sales by approximately £800k, albeit the group has largely been able to mitigate these pressures through efficient marketing, disciplined customer acquisition and strict control of costs. 

But due to the uncertain trading and macro environment and headwinds in relation to increased cost pressure, the group now expects revenue and profit for the year ending June 2022 to be slightly below consensus market estimates. 

CEO Jay Wright commented: “As expected, the trading environment has evolved considerably over recent months, and given strong prior year comparatives, we have worked hard to maintain encouraging growth from our core sales channels, whilst maintaining strict discipline around our customer acquisition and our cost control. 

“Despite current headwinds we look forward to the future with optimism. We have a range of leading consumer propositions with more and more people experiencing the benefits of buying delicious, great value wine online through our subscription models. We also have strong growth in our commercial channel and a clear strategy for continued long term, profitable growth.” 

Virgin Wines shares have dropped 20% this morning back to 160p, having floated in March last year at 197p per share.

Morning update 

Nestlé Health Science has agreed to purchase a majority stake in Orgain, a leader in US-based plant-based nutrition player, from founder Dr. Andrew Abraham and Butterfly Equity, who will continue to be minority share owners.  

Orgain complements Nestlé Health Science’s existing portfolio of nutrition products that support healthier lives. 

“Nutritional protein plays a key role in supporting our health and wellness, whether we enjoy an active lifestyle or are facing health challenges,” said Greg Behar, CEO of Nestlé Health Science. “Orgain’s emphasis on clean, all natural, plant-based, organic ingredients has made it a leader in the U.S., and we look forward to combining our companies’ expertise to bring Orgain to more people around the world.” 

Orgain was founded in 2009 in California by Abraham, developing the protein-based shakes, powders and snacks.  

Orgain has grown to become the leading plant-based protein powder and leading organic nutritional protein ready-to-drink shake in the U.S. 

“Nestlé Health Science and Orgain share the same philosophy: better nutrition can change lives,” said Abraham said.  

“As someone who has experienced the power of clean, protein-based nutrition, and as a physician, it’s been important for me to help as many people as possible to live their most vibrant lives. We’ve worked hard to develop innovative products that make a real difference in consumers’ lives, and now through Nestlé Health Science’s capabilities, resources and dedication to nutrition, we will be able to reach more people around the world.”  

Dr Abraham will continue to serve as CEO of Orgain. 

The transaction is subject to customary regulatory approvals.  

The deal is expected to be slightly accretive to Nestlé’s organic growth, while slightly dilutive to the group’s underlying trading profit margin in 2022.  

The agreement includes the option for Nestlé Health Science to fully acquire Orgain in 2024. 

Elsewhere, FTSE 100 catering giant Compass Group has reported an “encouraging start to the year” as key territories emerge from Covid lockdowns. 

Organic revenue grew by 38.6% in the first quarter, with revenues reaching 97% of their pre-COVID level.  

The quarterly improvement was largely driven by new business, continued strong client retention along with some ongoing recovery in the base business. The emergence of the Omicron variant had a limited impact on the group during the period, it said. 

Performance improved across all regions with four out of its five sectors now trading above 100% of 2019 revenues.  

Growth was particularly strong in North America in sports & leisure and education.  

In Europe, all sectors traded well except for business & industry which continues to be impacted by reopening delays.  

The Rest of World region continued to benefit from a higher exposure to the more resilient defence, offshore & remote sector. 

“We are encouraged by the strong start to the year, excellent new business wins and continued strong client retention, Compass stated.  

“However, we are mindful of some impact from the Omicron variant in Q2, with Business & Industry clients delaying their return to work, some Sports & Leisure events being postponed and Education facilities extending remote learning.” 

Its guidance for the year remains unchanged, with it expecting full year organic revenue growth of 20 - 25%, as quarterly growth rates moderating through the year to reflect more challenging comparatives.  

Full year underlying operating margin is expected to be over 6%, returning to around 7% by the year end. Margin progression will be second half weighted, with the first half margin anticipated to be around the Q4 2021 exit rate. 

It said: “Looking further ahead, we remain excited about the significant structural growth opportunities globally, leading to the potential for revenue and profit growth above historical rates, returning margin to pre-pandemic levels, and rewarding shareholders with further returns.” 

Meat processor Cranswick continued to benefit from strong UK retail demand due to the continued shift towards greater in-home consumption resulting from the COVID-19 pandemic.  

Performance over the festive trading period was “robust” and well ahead of the same period in 2020, reflecting “a well-executed Christmas plan, supported by exemplary service levels to our customers”. 

Widespread cost inflation was proactively mitigated through tight cost control and ongoing recovery.  

However, Far East export sales were, as anticipated, lower than the same quarter last year due to market prices falling back from the elevated levels experienced over the previous two years and the ongoing suspension of its Norfolk primary pork processing facility’s China export licence. 

It stated: “The UK pork sector continues to face operational and commercial challenges with the supply of pigs at times exceeding demand and processing capacity.   

“Cranswick is working with the wider farming community to reduce the backlog of pigs on farms and, in the current financial year, has increased the number of pigs processed.   

“Given the magnitude of this industry issue, we continue to lobby the government for sector support to help alleviate the backlog, including the reinstatement of Chinese export licences and addressing the acute shortage of skilled butchers.” 

The group continues to invest across its production facilities, with work on its £31m premium breaded poultry facility in Hull is progressing and the plant due to be commissioned early in the new financial year.   

As expected, net debt increased during the period reflecting the usual seasonal uplift in working capital and the Group’s substantial ongoing capital investment programme. 

Overall, the board’s expectations for the Group’s trading performance in the current year are unchanged. 

Cranswick stated: “Looking ahead, the Board is confident that continued focus on the strengths of the Company, which include its long-standing customer relationships, breadth and quality of products, robust financial position and industry leading asset infrastructure, will support the further successful development of the group over the longer term.” 

On the markets this morning, the FTSE 100 has opened a few points up at 7,589.1pts.

Early risers include Compass Group, up 6.5% to 1,761.2p, Marston’s, up 2.1% to 83.2p and AG Barr, up 1.8% to 519.3p.

Fallers, along with Virgin Wines, include Naked Wines, down 3.4% to 498.5p, PayPoint, down 2.3% to 648.8p and Deliveroo, down 2% to 149.9p.

Yesterday in the City 

The FTSE 100 closed up 0.6% to 7,583pts yesterday. 

Risers included Ocado, recovering from a share price drop earlier in the week by rising 5.7% to 1,512.5p. 

Other risers included Tate & Lyle, up 3.7% to 731p, AG Barr, up 2.1% to 49.5p, Diageo, up 2% to 510p, Coca-Cola HBC, up 1.9% to 2,510p and Nichols, up 1.7% to 1,357.5p. 

The day’s fallers included Science in Sport, down 3% to 64p, SSP Group, down 2% to 268.6p, WH Smith, down 2.8% to 1,643p, THG, down 2.2% to 126.8p, Just Eat Takeaway.com, down 2.1% to 3,632p, Finsbury Food Group, down 1.6% to 91p and Pets at Home, down 1.6% to 422.2p.