LONDON - Britain's largest wine warehouse chain Majestic Wine said it would get a boost from First Quench Retailing's fall into administration as it posted a 9 percent rise in first-half profit and robust current trading.
KPMG, administrators to First Quench, which runs off-licence chains Threshers, Wine Rack, Victoria Wine, Bottoms Up and Haddows, are closing 373 stores by Dec. 2 and looking for buyers for about 830 more.
They are a direct competitor, in particular Wine Rack, the more upmarket end of the First Quench operation ... Clearly the removal of capacity from the high street has to have a beneficial effect for us, Chief Executive Steve Lewis told Reuters on Monday.
Shares in the 153-store Majestic Wine, which have risen 78 percent over the last year, were up 3.3 percent at 251.75 pence at 1000 GMT, valuing the business at 156 million pound ($261 million).
House broker Investec Securities upgraded its investment stance to buy from hold, its target price to 280 pence from 230 pence, and its year to end-March 2010 pretax profit forecast by 10.5 percent to 14 million pounds.
We see scope for further sales and earnings growth, as we expect the enhanced multichannel proposition and lower minimum purchase requirements to become customer acquisition drivers, analysts at Investec said in a note.
The company posted a pretax profit of 6.1 million pounds for the 26 weeks to Sept. 28, up from 5.6 million pounds in the same period last year.
Sales increased 13.4 percent to 106.7 million pounds, with UK like-for-like sales up 5.4 percent, as the firm benefited from weak comparative numbers, more favourable weather conditions and a 25 percent rise in online sales.
Sales to private customers grew 8.9 percent but sales to business customers fell 6.9 percent.
Every finance director in every company across the land has put a red line through corporate entertaining and gifting. Whereas private customers, if you've got a compelling proposition, are still prepared to spend their own money, said Lewis.
UK like-for-like sales were up 6 percent in the five weeks to Nov. 2.
Majestic Wine, facing intense competition from UK supermarkets, introduced a new trading strategy on Sept. 1, shifting its minimum in-store purchase from 12 to six bottles.
The move was designed to make the retailer more accessible to current and new customers and raise its 3 percent share of a British wine market worth about 5.8 billion pounds.
Initial indications following the full rollout are encouraging, said Lewis.
He forecast a highly competitive Christmas trading period, given that wine has become a key battleground for supermarkets.
The interim dividend was maintained at 2.8 pence. (Editing by Mark Potter and Will Waterman) ($1=.5976 Pound)