Virgin Wines UK has warned about margins for the coming years, despite pre-tax profits rising from £1.7m last year to £5.1m in the 12 months to 1 July.
The online wine retailer said that, after adjusting for exceptional charges in the previous year, its pre-tax profit was ‘virtually unchanged’ at £5.1 million. This represents an improvement of 83 percent compared to the result for the fiscal year 2020.
Virgin Wines reported group sales of £69.2 million, down £73.6 million year-on-year, while WineBank’s revenue rose to £38.5 million, from £31.8 million.
The group’s boss, Jay Wright, said he expects more Brits to drink at home this winter as the cost of food and drink rises.
Wine at home: Virgin Wines boss thinks more Brits will choose to drink at home this winter as costs rise
The company’s sales were 63 percent above 2019 levels, confirming much of the company’s growth from the pre-Covid period.
Gross margins for the year were flat overall at 31.4 percent, up from 31.6 percent in 2021, thanks to the company’s “disciplined approach” to margin against a backdrop of volatile input costs. It noted that its margins remained 1.1 percent above 2020 levels.
Virgin Wines Shares were up 3.03 percent or 1.50p to 51.00p this afternoon, after falling more than 70 percent in the past year.
In its latest annual results today, Virgin Wines said it went from a loss of 0.5 pence per share in 2021 to basic and diluted earnings of 7.8 per share, while adjusted EBITDA fell from £7 million to £6. 2 million.
The group said it maintained a “leading” EBITDA margin of 9 percent, down 9.5 percent year-over-year, while EBITDA increased 136 percent above 2019 levels.
The company’s cash balance totaled £15.1 million on July 1, compared to £15.7 million a year ago.
After deducting deposits from customers of WineBank, the cash position on 1 July was £7.7 million, a decrease of £8.4 million.
WineBank deposits are kept segregated from group cash and held in a shielded bank account, which is not used to fund working capital
Given the group’s strong balance sheet and cash reserves, the board of directors said it is “aware” of the importance of an effective capital allocation.
Virgin Wines said August trading was positive but softer than expected in September, and was hit by the national mourning period for Queen Elizabeth II and the group’s decision to suspend marketing and promotional activities during that period.
Looking ahead, the group’s board said there would be continued pressure on consumers’ disposable income, and as such was aware of the potential impact on order frequency and average order value.
But as consumer spending came under pressure, the company also said it was aware that people were more likely to “stay in” and socialize at home, rather than take the more expensive option of going out.
It expects sales to be “relatively resilient,” with sales growth expected to be “largely flat” for the 2023 fiscal year.
Given the macroeconomic environment and cost pressures in many areas, the company said it was “careful planning” for Christmas.
Boss Jay Wright said: “Despite widely documented macroeconomic challenges and consumer uncertainty, Virgin Wines has continued to demonstrate its resilience and strong position in the direct-to-consumer online wine retail business.
“In the context of a serious cost of living crisis, we also believe that our wines are an affordable treat compared to the cost of alternative options such as going to pubs and restaurants, which is why we may be seeing more people choosing them.” to socialize and drink wine at home for the next few months.’
Wright said the company remained “confident” in its fundamentals, focusing on commercial opportunities through new and expanded strategic partnerships that deliver “significant” benefits.
Russell Pointon, Director of Consumer at Edison Group, said: “Going forward, senior management remains convinced that it is the impact of declining consumer confidence coupled with the cost of living crisis already impacting the beverage industry.
“As households tighten their budgets, senior management hopes people will be more likely to socialize from home rather than go out to grab a glass of wine.
“With its competitive pricing offerings and a range of subscription plans to help customers save money, the group is indeed well positioned to capitalize on this potential shift in consumer behavior to enhance its position as a major player in the direct-to-consumer wine sector.”
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