Virgin Wines UK has warned on margins for the coming years, despite pre-tax-profits jumping to £5.1million in the 12 months to 1 July from £1.7million last year.
The online wine retailer said that after adjusting for exceptional costs in the prior year, its pre-tax profit was ‘virtually unchanged’ at £5.1million. This represents an 83 per cent improvement when compared against fits result for the 2020 financial year.
Virgin Wines reported group revenue of £69.2million, down from £73.6million year-on-year, with WineBank scheme revenue rising to £38.5million, from £31.8million.
The group’s boss, Jay Wright, said he expects more Britons will drink at home this winter as the cost of eating and drinking out soars.
Wine at home: The boss of Virgin Wines thinks more Britons will opt to drink at home this winter as costs surge
The company’s revenue was 63 per cent above 2019 levels, solidifying much of the company’s uplift from the pre-Covid period.
Gross margins for the year were broadly stable at 31.4 per cent, against 31.6 per cent in 2021, which the company put down to its ‘disciplined approach’ to margin against a backdrop of volatile input costs. It noted that its margins remained 1.1 per cent above levels achieved in the 2020 period.
Virgin Wines shares were up 3.03 per cent or 1.50p to 51.00p this afternoon, having fallen over 70 per cent in the last year.
In its latest annual results today, Virgin Wines said it swung to basic and diluted earnings of 7.8p a share, from losses of 0.5p per share in 2021, while its adjusted EBITDA slipped to £6.2million, from £7million.
The group said it maintained an ‘industry-leading’ EBITDA margin of 9 per cent, down from 9.5 per cent year-on-year, while its EBITDA swelled by 136 per cent above 2019 levels.
The company’s cash balance at 1 July totalled £15.1million, compared to £15.7million a year ago.
Net of ‘WineBank’ customer deposits, its cash position on 1 July was £7.7million, down from £8.4million.
WineBank deposits are kept separate from group cash, and held in a ring-fenced bank account, not used to fund working capital
Given the group’s strong balance sheet and cash reserves, the board said it was ‘mindful’ of the importance of effective capital allocation.
Virgin Wines said trading was positive in August, but was softer than expected in September, and hit by the national mourning period for Queen Elizabeth II, and the group’s decision to cease marketing and promotional activity during that period.
Looking ahead, the group’s board said there would be continued pressure on consumers’ disposable income, and as such it was mindful of the potential impact on frequency of order and average order values.
But, as consumer spending came under pressure, it said it was also aware that people were more likely to ‘stay in’ and socialise at home, rather than taking the more expensive option of going out.
It expects top-line performance to be ‘relatively resilient’, with revenue growth set to be ‘broadly flat’ for the 2023 financial year.
Given the macroeconomic environment and cost pressures in numerous areas, the firm said it was engaging in ‘careful planning’ for Christmas.
Boss Jay Wright said: ‘Despite widely documented macroeconomic challenges and consumer uncertainty, Virgin Wines has continued to show its resilience and strong positioning in the direct-to-consumer online wine retail sector.
‘In the context of a severe cost of living crisis, we also believe that our wines represent an affordable treat compared to the cost of alternative options such as going to pubs and restaurants, and therefore we may see more people opting to socialise and drink wine at home in the coming months.’
Wright said the firm remained ‘confident’ in its fundamentals, with an emphasis on commercial opportunities through new and expanded strategic partnerships delivering ‘significant’ benefits.
Russell Pointon, director of Consumer at Edison Group, said: ‘Going forward, senior management remains confident that it will be able to weather the impact of dwindling consumer confidence coupled with the cost-of-living crisis which is already having its impact on the drinks industry.
‘As households tighten their budgets, senior management is hoping that people will be more likely to socialise from home rather than heading out to grab a glass of wine.
‘With its competitive price offering and a range of subscription schemes to help customers save money, the group is indeed well positioned to take advantage of this potential shift in consumer behaviour in order to maintain its position as a key player in the direct-to-consumer wine sector.’