Virgin Wines predicts more Britons will be drinking at home this winter

Virgin Wines UK has warned about margins for the coming years, despite pre-tax profits jumping to £5.1m in the 12 months to July 1 from £1.7m last year.

The online wine retailer said after adjusting for exceptional costs in the previous year, its pre-tax profit was “virtually flat” at £5.1m. This represents an 83 percent improvement over the corresponding result in fiscal 2020.

Virgin Wines reported group revenue of £69.2m, down from £73.6m in the same period last year, while income from the WineBank scheme increased to £38.5m from £31.8m sterling.

The group’s boss, Jay Wright, said he expected more Britons to drink at home this winter as the cost of eating and drinking out rises.

The company’s revenue was 63 percent higher than 2019 levels, underpinning much of the company’s growth from the pre-COVID period.

Gross margin for the year was broadly flat at 31.4 percent, versus 31.6 percent in 2021, which the company attributed to its “disciplined approach” to profitability amid volatile material costs. It noted that its profitability remained 1.1 percent above the level achieved in the 2020 period.

Virgin Wines shares rose 3.03 per cent or 1.50p to 51.00p this afternoon, down more than 70 per cent over the past year.

In its latest full-year results today, Virgin Wines said it swung to underlying and diluted earnings of 7.8p per share, compared with a loss of 0.5p per share in 2021, while adjusted EBITDA fell to 6, £2m out of £7m.

The group said it maintained an “industry-leading” EBITDA margin of 9 percent, up from 9.5 percent year-on-year, and its EBITDA grew 136 percent year-on-year.

The company’s cash balance as of July 1 amounted to £15.1 million compared to £15.7 million a year ago.

Excluding deposits from WineBank customers, its cash position on July 1 was £7.7m, down from £8.4m.

WineBank deposits are kept separate from group cash and held in a segregated bank account that is not used to finance working capital

Given the group’s strong balance sheet and cash reserves, the board said it was “aware” of the importance of efficient capital allocation.

Virgin Wines said trading was positive in August but was softer than expected in September, hit by national mourning for Queen Elizabeth II and the group’s decision to halt marketing and promotional activities during the period.

Looking ahead, the group’s board said there will continue to be pressure on consumers’ disposable income, and as such it is mindful of the potential impact on order frequency and average order value.

But as consumer spending comes under pressure, they are also aware that people are more likely to ‘stay in’ and socialize at home rather than opting for the more expensive option of going out.

Revenue is expected to be “relatively flat” and revenue growth is expected to be “broadly flat” in fiscal 2023.

Given the macroeconomic environment and cost pressures across many industries, the firm said it was “carefully planning” for Christmas.

Boss Jay Wright said: “Despite well-documented macroeconomic challenges and consumer uncertainty, Virgin Wines continues to demonstrate its resilience and strong positioning in the direct-to-consumer online wine retail sector.

“In the context of a major cost of living crisis, we also believe that our wines are an affordable treat compared to the cost of alternatives such as going out to pubs and restaurants, so we can see more people choosing to socialize and drink wine at home in the coming months.”

Wright said the firm remains “confident” in its fundamentals, with a focus on commercial opportunities through new and expanded strategic partnerships that deliver “significant” benefits.

Russell Poyton, consumer director of Edison Group, said: “Going forward, senior management remains confident that it will be able to weather the effects of declining consumer confidence combined with the cost of living crisis that is already affecting the drinks industry.

“As households tighten their budgets, senior management hopes that people will socialize at home more often, rather than going out for a glass of wine.

“With competitive pricing and a range of subscription schemes to help customers save money, the group is well placed to capitalize on this potential shift in consumer behavior to maintain its position as a key player in direct access. consumer wine sector’.