Naked Wines shares have tanked after the DTC wine seller hinted at a change of strategy to deal with falling consumer demand and rising costs.
In an unscheduled business update last night after markets had closed, the group said it was reviewing potential operational and financial plans for the next 18 months and would give more details alongside a first-half trading update in October.
It also separately announced that non-executive director Pratham Ravi, an analyst at Punch Card Capital, one of Naked’s largest shareholders, had resigned from the board less than three weeks after joining on 25 August.
Liberum analyst Wayne Brown expected the news to “rock the shares” and said “something has gone somewhat awry”.
Shares in the business slumped 27% as markets opened this morning and closed almost 40% down at 88p. Virgin Wines UK was also dragged down amid the gloomy sentiment, falling 7.8% to 47.5p today.
It marks a dramatic reversal in fortune for Naked Wines, which had experienced a boom during the pandemic, with shares hitting highs of almost 900p in 2021. The stock has plummetted more than 85% so far in 2022.
In June, Naked spooked investors as it warned of tumbling new customers numbers and difficulties hanging on to customers as consumer confidence was hit by the cost-of-living crisis.
“The group’s focus is on developing plans demonstrating increased profitability, cost restraint and improved payback,” Naked said in last night’s update.
It added it was also in “active discussions” to address its credit facility to reflect any revised plan.
“The group remains in compliance with all obligations around this facility through Q1 and expects to have headroom to the Q2 covenant tests,” the update said.
Brown of Liberum said: “The business update talks about cost cutting, focussing on profitability going forward which we interpret as a change in strategy and not being so aggressive on growth.
“This could imply a smaller business in the future and reigning in ambitions which makes sense considering how poor KPIs are. But it is the weak balance sheet, question marks around the covenants in Q1, liquidity and going concern issues and also how the group will drive liquidity in Q2, could suggest the trading update on 17 October could be rather negative.”
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