City snapshot: Virgin Wines launches ‘full business review’ after sales and profits plunge

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Online wine merchant Virgin Wines has launched a ‘full business review’ as pressure on consumer spending hit first-half sales and profits.

Total revenues for the six months to 31 December fell 17.2%, back to £33.6m from £40.6m, amid adverse trading conditions from inflationary pressures and cost of living issues affecting consumer spend and frequency of order.

Additionally, the group was affected during the period the two weeks of national mourning following the death of the Queen in September, while teething problems with the implementation of its new warehouse management system and postal strikes leading up to Christmas hit festive trading.

The company delivered an underlying EBITDA of £1.4m, less than half of the £3,9m in the previous year.

The one-off issues associated with the reduction in September trading and the early cut-off for Christmas impacted first half revenue by circa £3.3m, while the profit lost from those sales negatively affected EBITDA by a further £1m.

Despite this “challenging” backdrop, the business said it acquired over 60k new customers over the first six months of the year with recruitment to the flagship WineBank subscription scheme particularly strong (up 21% year on year).

The commercial arm of the business continues to accelerate year on year, generating growth of 25% and 71% ahead of 2020 levels driven by partnerships with Moonpig and Virgin Red.

January and February trading broadly in line with expectations with consistently resilient demand among loyal customers, it said.

As the landscape remains challenging, it said it continue to be disciplined with marketing investment, focusing on low cost recruitment and maximising value from the existing customer base.

Meanwhile, it has launched a full business review to ensure it is “fully leveraging the opportunities available to us and that we are positioned as positively as possible for future growth and profitability”.

The group said it remained open-minded about potential strategic opportunities, but noted that the quality of potential acquisitions available that could deliver incremental value has been mixed and the desire to look at international expansion is limited in the short to medium term.

The business is therefore focusing resources on delivering growth opportunities in the domestic market, utilising its core competencies and infrastructure to drive performance over the coming three years.

It will provide an update before the end of its second half.

For the full year, the board expects revenue to be around £63m, full year EBITDA margin to be between 4% and 5%, and EBITDA margin excluding exceptional factors to be 2% higher, in the range of 6%-7%.

CEO Jay Wright commented: “As previously announced in our year-end trading update, profitability was impacted during the first half, with a number of macroeconomic headwinds exacerbating certain internal and operational challenges which we encountered particularly over our peak Christmas trading period.

“However, we continue to make progress on addressing the challenges where we can, and we remain confident in the future growth prospects of Virgin Wines. This is underpinned by the fundamental strength of our business model and consumer proposition, with our customers remaining loyal and ever-increasing numbers signing up to our WineBank subscription scheme.

“Furthermore, our exciting new strategic partnerships continue to be a key focus in helping to introduce our brand’s unique, high-quality products and service to new customers every day. The growth in our WineBank membership and continued focus on low cost customer acquisition, disciplined cost control, maximising gross margins and optimising working capital to maximise free cash flow, places us in an advantageous position to capitalise on opportunities as the cost of living crisis eases.”

Virgin Wines has dropped another 9.7% today back to 43.9p and has lost more than two thirds of its value of the past year.

Morning update

Sainsbury’s has completed a £431m acquisition of a portfolio of supermarkets from property investor Supermarket Income REIT.

The real estate investment trust and the supermarket have exchanged contracts for the sale of its interest in the Sainsbury’s Reversion Portfolio for a total gross consideration of £430.9m.

The sale completes the previously announced acquisition by Sainsbury’s of 21 of the 26 SRP Portfolio properties.

The transaction is expected to close on 17 March 2023 with the £430.9 million consideration paid in three tranches – £279.3m will be paid on 17 March 2023 and £116.9m on 10 July 2023. The third tranche of £34.7m is conditional on the sale of the remaining five stores in the SRP Portfolio.

As part of the transaction, Sainsbury’s has entered into new 15-year leases on four of the five remaining stores, with five yearly open market rent reviews and a tenant break option in year 10.

Following completion of the transaction, Supermarket Income REIT has an option to acquire these four stores benefiting from the new Sainsbury’s 15-year leases for a net consideration of £28.3m.

It is expected that the one remaining store will be sold at vacant possession value.

Supermarket Income REIT will use the proceeds to reduce the its existing debt facilities, further strengthening the Company’s balance sheet.

On 21 September 2022, Sainsbury’s announced that it had reached agreement on an acquisition price for stores held in the Highbury and Dragon investment vehicles in which it had held a 49% since it was created in 2000.

Additionally, Sainsbury’s will fully fund the Highbury and Dragon bond redemptions of £170.5m on 20 March 2023 and £130.4m 13 July 2023 respectively, funded by utilising the group’s cash resources and also by drawing under a committed unsecured term facility.

Ben Green, Director of Atrato Capital Limited, the Investment Adviser to Supermarket Income REIT, said: “This investment has been highly accretive for our shareholders and is further evidence of the long-term strength and value of UK grocery property.”

Patrick Dunne, director of group property, FM & procurement at Sainsbury’s, commented: “We are pleased to have reached a positive outcome to conclude our joint venture and look forward to continuing to work with Supermarket Income REIT in the future.”

Retail Technology group Eagle Eye Solutions has posted strong first half growth, driven by international expansion.

During the six months to 31 December, the group posted revenue growth of 32% to £20m.

Revenue generated from recurring subscription fees and transactions over the network represented 78%, driven primarily through the North American business where revenue increased by 156% to £7.4m due to new client ‘go lives’ such as the major grocer won in association with Neptune and Giant Eagle.

Outside of North America, revenue growth was primarily driven by the transaction volume expansion of the Woolworths service and the adoption of loyalty by Asda, in addition to its existing promotion services.

Professional services revenue increased by 19% to £4.3m, led by growth in implementation fees in the EMEA region primarily from Asda Loyalty and recent new wins such as Ikea Indonesia and Endeavour.

Continued control over operating expenses, which saw them increase by 30%, behind the gross profit increase of 35%, has seen adjusted EBITDA grow by 50% to £4.7m.

While conscious of the challenging wider economic backdrop, trading since the period end has continued to be strong, the group said it is confident in delivering another year of profitable growth, with revenue and adjusted EBITDA for the year ended 30 June 2023 now expected to be comfortably ahead of current market expectations.

Tim Mason, CEO of Eagle Eye, said: “Our strong performance over the last six months reflects the continued relevance of our loyalty and promotions platform at a time when digital engagement with consumers has never been more important. We have continued to grow our customer base and deepen customer engagements around the world, proving our position as a leader in digital engagement for tier-1 retail.

“We were delighted to complete our first acquisition in January 2023, bringing the talented Untie Nots team into the business. Separately, we have both been growing rapidly. Together, we are significantly stronger. I am encouraged by the initial conversations with major retailers around the world, which provides incremental opportunities for the group.

“While we are conscious of the challenging economic backdrop, the strength of our SaaS business model, along with a healthy new business pipeline, growing international presence and supportive market drivers, underpins the board’s confidence in delivering another year of profitable growth.”

On the markets this morning, the FTSE 100 has edged down another 0.2% to 7,532.1pts following yesterday’s losses.

Risers include McBride, up 4.3% to 27.9p, Science in Sport, up 3.7% to 14p and Supermarket Income REIT, up 1.9% to 87.2p.

Fallers, along with Virgin Wines, include Deliveroo, down 4% to 88.8p, Nichols, down 3.2% to 1,045.3p and Bakkavor, down 2.7% to 102.2p.

Yesterday in the City

Amid the collapse of Silicon Valley Bank in the US and global market caution, the FTSE 100 ended the day down 2.6% 7,548.6pts.

Tech firms were amongst the biggest casualties, with Ocado down 6.1% to 423.8p, Just Eat Takeaway.com, down 5.5% to 1,644.4p and SVB customer Naked Wines, down 4% to 94.5p despite reassuring the market.

Other fallers included Finsbury Food Group, down 4.9% to 97p, SSP Group, down 4.7% to 245.7p, Marks & Spencer, down 3.7% to 152.2p, Associated British Foods, down 3.4% to 1,948p, British American Tobacco, down 3.4% to 3,013.5p and Greggs, down 3.2% to 2,576p.

The day’s few risers included Deliveroo, up 3.1% to 92.4p, McBride, up 2.5% to 26.8p and Bakkavor, up 1% to 105p.