Majestic Wine said on Tuesday that it plans to invest up to £12m a year to attract new customers, a move that will cut its earnings for next year by up to £3m.
The AIM-listed specialist wine retailer said in an update ahead of a capital markets day that the opportunity to invest in new customer acquisition is “materially bigger” than previously thought and there is potential to double from the current level over time.
As a result, it will invest an additional £9m to £12m, of which £7m to £10m is directed at growth and £2m will ensure it drives growth “safely”. This will cut adjusted earnings before interest and taxes by £2m to £3m in FY19, but “increase annual generation of future value from £48m to £80m+ a year”.
Chief executive officer Rowan Gormley said: “We are in the fortunate position of having the option to accelerate growth by investing in new customer acquisition.
“We are starting from a good place with the core business on track to meet our 2019 sales target of £500m and the market's expectation for profits and dividend in FY18.”
Company-compiled consensus adjusted EBIT for 2018 is £17.9m, while adjusted pre-tax profit consensus is £16.8m.
Shore Capital analyst Phil Carroll said this was a “reassuring” update from a trading perspective “given the well-documented travails of a number of retail businesses recently” and that the logic management put forward with the updated strategy “makes sense on face value”.
“However, we suspect it may take the market some time to fully absorb and clearly getting comfortable with management's justification of the bigger market opportunity is going to be key (this includes ourselves too). Therefore, whilst our forecasts are going to see a hit to growth in the P&L next year, it should result in strong growth and value creation going forward.”
At 1000 BST, the shares were up 4.3% to 414p.