By Scott Kanowsky
Investing.com -- Naked Wines PLC (LON:WINEW) has warned that it expects to report a drop in revenue during its next fiscal year as it deals with elevated costs in recruiting key new customers.
In a trading update, the direct-to-consumer wine retailer said it will spend between £20 million and £24 million (£1 = $1.2213) on marketing to new consumers over its current twelve-month financial period, which would be about 40% below prior-year levels. Naked Wines flagged that this is "below the run rate necessary" to maintain the current scale of the business, adding that there will be a "modest decline" in 2024 sales as a result.
The company has traditionally invested heavily in attracting new customers, with the ultimate goal of monetizing them after over a five-year timeframe through repeat sales. However, this business model has been put under significant pressure from surging inflation, which has pushed up marketing expenses and weighed on potential investment returns.
Over the quarter ended on December 26, new customers dropped by 32% year-on-year at constant currency. Using the same measure, total group sales fell by 6%.
"[T]he consumer and marketing environment remains challenging and opportunities to invest in new customer recruitment at attractive payback levels continue to be limited," Naked Wines group chief executive Nick Devlin said in a statement.
London-listed shares in the firm slid by more than 2.5% in early trading on Tuesday. The stock has now shed over three-fourths of its value during the past one-year period.
But the e-commerce group raised its outlook for yearly earnings before interest and taxes to £13M - £17M, up from its prior guidance of £9M - £13M. Naked Wines previously outlined plans to switch to a model that centers more around profitability than growth, which analysts have suggested could lead to a smaller business in the future.
In a note to clients, analysts at Jefferies said they are seeing signs that this pivot is being well-executed. But they added they are "increasingly looking for reassurance" that these profits can be sustainable given the issues around new customer recruitment.