Virgin Wines full-year revenue, earnings fall as expected

(Sharecast News) - Direct-to-consumer wine retailer Virgin Wines UK reported annual results in line with expectations on Wednesday, as group revenue fell to £59m from £69.2m year-on-year. That was, however, up from £42.3m in the pre-pandemic comparative 2019 financial year.

The AIM-traded firm said that while the figure aligned with expectations, it was impacted by one-off exceptional events related to implementing a new warehouse management system (WMS).

Revenue from its 'WineBank' scheme stood at £35.3m for the 12 months ended 30 June.

Adjusted EBITDA slid to £1.8m from £6.2m year-on-year, while adjusted profit before tax tumbled to £0.6m from £5.2m in the 2022 financial year.

Losses per share came in at 1.1p, swinging from earnings per share of 7.8p in the prior year, while Virgin Wines reported a healthy net cash balance of £5.5m as of 30 June, with no debt.

Additionally, there was a 24% reduction in inventory, decreasing from £11m in December to £8.4m at the end of June.

The board said that gross margins for the 2023 financial year came in at 29.6%, reflecting inflationary pressures.

On the strategic front, Virgin Wines said it pursued a disciplined approach to new customer acquisition, adding 91,500 new customers in the year, with over 70% of those acquired through key partnership channels.

The cost per recruit was £11.99 - one of the lowest recorded outside of Covid-19, while the conversion rate remained consistent with 2022 levels at 46.8%.

Virgin Wines reported an active customer base of 173,000, with a record 133,000 WineBank members.

WineBank customer deposits reached £8m by year-end, while customers on subscription schemes contributed 87% of direct-to-consumer sales, and WineBank cancellation rates reached 17.3% by year-end.

The company also strengthened its strategic partnerships, forming agreements with WHSmith Travel, Saga, Go Outdoors and OnTheMarket.

Commercial revenue accounted for 11.6% of total 2023 sales.

The firm said it made significant progress in environmental, social, and governance (ESG) initiatives, achieving carbon neutrality according to the PAS 2060 standard, reducing emissions, and committing to science-based targets.

Looking ahead, Virgin Wines reported a 12% increase in year-on-year sales in the first quarter of the 2024 financial year, with positive conversion and cancellation rate trends.

The commercial sales channel also showed positive year-on-year growth of 8% post-year end.

Strategic initiatives identified in the business review were expected to be introduced in the second and third quarters of the 2024 period, including a new value proposition, a premium Australian Wine Club, and a brand refresh.

The new warehouse management system now operated robustly, with reduced operating costs and increased efficiency.

Virgin Wines anticipated double-digit sales growth in 2024, with an EBITDA margin of between 4% and 5%, as inflationary pressures eased, particularly on freight and glass.

"2023 has been a year affected by a number of challenges, from well-documented macroeconomic headwinds to a number of one-off, exceptional issues, most specifically relating to the implementation of our new warehouse management system in the first half," said chief executive officer Jay Wright.

"Despite this, we have continued to grow our WineBank membership, maintain excellent discipline in our customer acquisition channel and deliver a healthy balance sheet, remaining debt-free with £5.5m cash reserves and much-reduced levels of stock.

"Our unique wines, market-leading propositions and best-in-class customer service continue to support our base of loyal customers, and WineBank remains a great way for them to spread the cost of enjoying high-quality wines."

Looking ahead, Wright said implementing several "exciting" new strategic initiatives following the completion of the firm's business review earlier in the year would support resilience and enhance its ability to cater to a broader range of customers.

"More broadly, we remain confident in our longer-term prospects given the strength of the customer proposition and our proven business model.

"Our continued focus on profit, generating cash and driving efficiencies also positions us uniquely within the sector.

"These pillars will remain consistent elements of our strategy moving forward."

Reporting by Josh White for Sharecast.com.