The Naked Wines (LSE: WINE) share price has been fermenting nicely during the last 12 months. Trading at the online-only booze superstore has soared during Covid-19 lockdowns and accordingly the business has risen 107% in value.
Naked Wines’s share price has trended lower in recent weeks, though, as the emergence of the Delta coronavirus variant has pushed infection rates higher again. This has fuelled fears that the government’s plans to fully re-open the hospitality and leisure sectors on 21 June could be disrupted. It has also cast a cloud over the extent of social gatherings in the UK.
Naked Wines has dropped a further 6% in Friday trading, too. It was last trading at 746p per share despite announcing a sharp sales increase for last year.
Revenues soar but losses increase
Today’s full-year trading statement showed revenues soar 68% during the 12 months to March 2021, to £340.2m. Naked Wines said that this had been driven by “the accelerated channel shift to online wine purchasing due to Covid-19, investment in customer acquisition and favourable customer retention and frequency trends”.
The AIM-quoted firm said that it had enjoyed “strong” growth across each of its US, UK, and Australian territories. But it said that turnover was particularly robust in its North American marketplace. Revenues here soared 78% year-on-year to £161.7m.
The number of active customers at Naked Wines climbed 53% from the previous year to number 886,000, it said. But a soaring top line couldn’t stop the e-retailer recording another annual loss. This clocked in at £10.7m, widening from the £5.4m reversal it endured in fiscal 2020.
A bright start to the new year
Losses at Naked Wines worsened last year as the company doubled-down on investment to attract new customers. The company spent £50m in financial 2021, up 117% from what it spent the year before. And Naked Wines plans to continue spending heavily and has earmarked a budget of £40m to £50m on similar activities like advertising in the current fiscal period.
The company said that sales in the first two months of financial 2022 were up 8% year-on-year. It has forecast full-year sales of between £355m and £375m too.
Here’s what I’m doing about Naked Wines
City analysts think that Naked Wines will endure another pre-tax loss this year. But they believe this will narrow to around £3.3m. Current consensus suggests that the business will break into the black with profits of £4.3m in financial 2023.
In my opinion there’s a lot to get excited about with Naked Wines. Its online-only model could provide plenty of upside as e-commerce takes off. It is also impressively expanding margins at it focusses on its fast-growing US marketplace. But I worry about whether or not the UK retail share is massively overvalued at current prices (it trades on a forward price-to-earnings ratio of 98 times for next year). I’m happy to pass on Naked Wines today and buy other British stocks instead.