Majestic Wine has warned that its profits could come in at £3 million lower than expected next year as it ramps up investment.
The alcohol retailer said that it is planning to up its investment in customer acquisition by around £9 million to £12 million, on top of the £12 million it already spends a year.
This bold move is expected to double customer acquisition, and Majestic has said that the investment opportunity was “materially bigger than previously thought”.
Though the expected £3 million hit to underlying earnings may scare some investors, its chief executive Rowan Gormley is confident the return on investment will be significant, estimating an additional £48 million to £80 million per year.
Currently, the retailer expects revenues for the year to April 2 to come in at £484.3 million, with earnings of £17.9 million.
We are in the fortunate position of having the option to accelerate growth by investing in new customer acquisition,” Gormley said.
“We are starting from a good place with the core business on track to meet our 2019 sales target of £500 million and the market’s expectation for profits and dividend in full-year 2018.”
“On a risk/return basis, the case for accelerating investment is clear. We can measure success in months while delivering returns over years.
“This is the right thing to do to maximise shareholder value.”
Although shareholders were initially cautious of the announcement, with Majestic share prices dropping three per cent this morning, many saw the announcement as positive news.
Shore Capital Markets analyst Phil Carroll said: “The logic management put forward with its updated strategy in today’s announcement makes sense to us 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.”