Majestic Wine insisted its turnaround strategy is working despite swinging to a loss in the first half, with the wine retailer at the “tipping point” of transforming growing sales into profits.

The business is one year into a three-year recovery plan under CEO Rowan Gormley, who took charge after Majestic paid £70m for Naked Wines in April 2015.

A fundamental part of the plan is to refocus investment away from store openings to winning new customers.

John Colley, MD of the Majestic retail arm, said a 2.6 percentage point (pp) bump in repeat customers in store in the six months to 26 September, a 11.7pp jump in availability to 78.3% and a small rise in five-star service ratings were all evidence the new direction was on the right track.

“Since we have started to focus on these KPIs, we have seen an uptick in the sales,” he added. “We’re going into our key trading period with 9% more customers than we did last year and our overall strategy around growing customers rather than stores seems to be working.”

Group revenues increased 13.2% in the half to £205.6m, with like-for-like sales at Majestic stores up 5.7% – the sixth consecutive quarter of growth at the retail division.

Majestic also reiterated its goal of hitting £500m in sales by the 2019 financial year, as well as restoring a dividend of 1.5p a share. The share price fizzed almost 5% higher in today’s trading to 316.3p as a result.

However, despite a 26.7% rise in sales at Naked Wines to £59m, profitability at the business was hampered by a failed direct mail campaign in the US, with EBIT down £3.4m to £980k.

This, along with weak growth in the commercial arm, saw adjusted group pre-tax profits collapse from £8.3m a year ago to just £51k for the half. Majestic slumped to a pre-tax loss of £4.4m once costs of £4.5m related to the Naked deal and investment in the turnaround plan took their toll.

Gormley said the group was at the “tipping point” of turning the sales growth into profits. “We are confident that future sales growth will translate to profit growth, because the step change in fixed cost growth is complete and we are aiming for – and look like we are achieving – sustainable sales growth.”

He also held his hands up for the failure of the Naked marketing campaign in the US. “Sadly, the roll out did not get anything like the results we saw in the testing, so we have bitten the bullet and ceased investment in the programme,” he said.

“Could we/should we have tested more cautiously? Unfortunately, yes, we could have and we should have. We will continue to test and learn, but we should not suffer another loss on this scale as we have learned from the experience, and will be proceeding more cautiously with future tests.”

The profit warning issued by Majestic in September, stemming from the failures of the campaign and growth running out of steam in the commercial business, resulted in shares plunging 23% in one day – the biggest daily fall in its history.

But Gormley remained “cautiously optimistic” as Majestic headed in to the Christmas peak trading season.

“Right now the level of uncertainty over exchange rates, Brexit, geopolitics etc. makes planning interesting to say the least,” he said. “The one thing we can be certain about is that there is going to be change, and the winners will be the companies that adapt best to those changes. We aim to be one of those companies.”

Analysts took a cautious view over whether the business could turn around profits in the second half.

“Investors could be forgiven for being just a tad less confident and waiting for evidence before popping corks,” said David Stoddart, analyst at Edison Investment Research.

Canaccord was also sceptical of management profit expectations for the full year of £12m-£12.5m. “Given the low H1 pre-tax profits base, this requires around an 80%-85% improvement in second-half profits, with the onus falling squarely on retail to deliver,” the firm added. “With uncertainty on the pricing environment, substantial inventory build and increasing net debt, risk is weighted to the downside in our view.”

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