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Virgin Wines reports solid first-half improvement

(Sharecast News) - Virgin Wines UK said in a trading update on Monday that, despite a challenging economic environment, it saw year-on-year revenue growth in its first half, as well as increased profitability, strong cash generation, and improved operational efficiency. The AIM-traded firm said total revenue for the six months ended 29 December reached £34.3m, making for 2% year-on-year growth.

Notably, sales to repeat customers increased by 5%, and commercial revenue saw a 6.5% uptick.

Virgin Wines attributed the growth to its disciplined approach to customer acquisition, which resulted in a 22% increase in new customer conversion rates and a 14% decrease in its fully-costed cost per acquisition.

The company's profitability also saw a substantial improvement during the period, with EBITDA surging 122% to £1.75m.

That performance resulted in an EBITDA margin of 5%, a significant increase from the 2.3% margin it reported in the first half of 2023.

The company credited the boost in profitability to its revenue growth and rigorous cost management, with operating variable costs decreasing by 14.5% year-on-year.

Conversion and cancellation rates for the flagship WineBank scheme continued to improve, with the conversion rate reaching 50% by the end of December, compared to 41.1% in 2022, and the cancellation rate decreasing to 16.8% from 17.8%.

The implementation of a new warehouse management system resulted in a 25% reduction in warehouse cost per case during the period.

Virgin Wines reported a robust financial position with no net borrowings, a strong balance sheet, and positive cash generation.

Gross cash at the end of the period, including WineBank Deposits, stood at £17.4m, compared to £14.1 million in December 2022 and £13.5 million in June.

Net cash, excluding Wine Bank Deposits, increased £3.4m to £11m at the end of the period.

The company said it was continuing to manage inventory and working capital in line with business requirements, with inventories at £8.4m as of 29 December, marking a decline of £2.6m from the end of the 2022 calendar year.

Looking ahead, Virgin Wines' board said it was confident in the company's prospects in 2024, in line with current market expectations.

It cited strong underlying trading, a high-quality product range, operational efficiency, a loyal customer base, and a proven business model as factors contributing to its optimism.

The board also highlighted strategic initiatives, such as the launch of Warehouse Wines, which were expected to further support the company's growth prospects, with more details to be provided in the coming months.

"We are pleased with our performance through the first half of our financial year, particularly our strong profitability despite the challenging trading environment, with EBITDA representing over 5% of revenue," said chief executive officer Jay Wright.

"Following operational challenges last year, we made significant improvements in our warehouse operations, achieving a planned reduction in fulfilment costs, while maintaining an excellent next day delivery service throughout the busy peak trading period.

"We have remained debt-free and cash generative, holding £17.4m of gross cash and £11.0m of net cash whilst reducing our inventory levels by 24% year-on-year."

Wright said the company's existing customer base continued to be active and loyal, with revenue from repeat sales channels up around 5% and the cancellation rate of its key WineBank subscription base at an 18-month low.

"Whilst new customer acquisition remains challenging, we have maintained our disciplined approach, and our new Warehouse Wines value offering which launched in late October has had an encouraging initial response.

"We go into the second half encouraged by our performance and in line with the key drivers behind our business model, whilst remaining mindful of the challenging consumer landscape."

At 0924 GMT, shares in Virgin Wines UK were down 1,05% at 37.6p.

Reporting by Josh White for Sharecast.com.

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Important information: This information is not a personal recommendation for any particular investment. If you are unsure about the suitability of an investment you should speak to one of Fidelity’s advisers or an authorised financial adviser of your choice. When you are thinking about investing in shares, it’s generally a good idea to consider holding them alongside other investments in a diversified portfolio of assets. Past performance is not a reliable indicator of future returns.

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