Virgin Wines says it continues to focus on winning both new subscribers and customers through B2B partnerships as it looks to move on from a first half in which its sales and profits were hit by issues from IT problems to delivery delays.
A combination of technical problems with its new warehouse management system and delivery delays during peak season strike action and bad weather meant that the wine pureplay had to cut off sales a week before Christmas, leaving to lost revenue worth about £1.5m. The retailer was also affected during the national mourning period following the death of Queen Elizabeth II in September.
The update comes as Virgin Wines today reports revenues of £33.6m in the six months to December 31. That’s 17% down from £40.6m at the same time last year. Earnings before interest, tax and one-off costs (EBITDA) came in at £1.4m, down 64% from £3.9m a year earlier. But after costs of £0.6m related to the need for extra labour, IT support and extra storage in the wake of operational issues related to its new WMS launch, pre-tax profits fell by 97% to £0.1m from £3.2m a year earlier. Operating expenses also rose by 2.6% to £9.6m.
Virgin Wines says it has remained “strongly focused” on adding new customers at a low cost per recruit (£11.82). That happens through its own WineBank subscription scheme – where numbers grew by 21% year-on-year (YOY) to 142k and customer deposits stand at £6.5m (+25%) – and through commercial partnerships with Moonpig (+283% YOY), Virgin Red (+77% YOY) and others. It started working with Saga in mid-November. It also says its cancellation rate of 17.8% is “a relatively small movement considering the dramatic change in consumer confidence and the trading environment”.
Gross margins have grown to a record 41.1% despite the rising costs of packaging, glass and freight. Looking ahead, the retailer believes that shoppers will continue to be careful with their spending and it will continue to be disciplined with marketing investment.
Virgin Wines chief executive Jay Wright says: “As previously announced in our year-end trading update, profitability was impacted during the first half with a number of macroeconomic headwinds exacerbating certain internal and operational challenges which we encountered particularly over our peak Christmas trading period.
“However, we continue to make progress on addressing the challenges where we can, and we remain confident in the future growth prospects of Virgin Wines. This is underpinned by the fundamental strength of our business model and consumer proposition, with our customers remaining loyal and ever-increasing numbers signing up to our WineBank subscription scheme.
“Furthermore, our exciting new strategic partnerships continue to be a key focus in helping to introduce our brand’s unique, high-quality products and service to new customers every day. The growth in our WineBank membership and continued focus on low cost customer acquisition, disciplined cost control, maximising gross margins and optimising working capital to maximise free cash flow, places us in an advantageous position to capitalise on opportunities as the cost of living crisis eases.”