Naked Wines: drink sales exposed to downturn notes

The share price of Naked Wines, the UK-based online wine retailer, has accidentally fallen like a green bottle in a nursery song. The group has taken a sober view of the hit that inflation will deliver to consumer demand. And telling equity investors not to worry about the status of a credit facility — as Naked did last week — has left them worrying considerably.

Pratham Ravi worried too, it appears. The non-executive director, who represented shareholder Punch Card Capital, resigned without explanation after only three weeks.

Naked pioneered an online model for wine sales in the UK, reversing into legacy competitor Majestic in the process. The Aim-listed company offered oenophiles deals on wine from unusual or sought-after vineyards.

But financial performance has been poor. Rising inflation and slowing economic growth leave the business, whose shares are 90 per cent below their pandemic peak, looking seriously challenged.

Some housebound consumers glugged their way through the pandemic, boosting Naked’s sales. Now the hangover. Substitution is not hard in the wine business. A cheaper bottle of plonk is easily available to price-conscious shoppers in Naked’s main US and UK markets.

Naked’s statement refers to a $60mn credit facility, saying it remains in compliance with its obligations, But the facility has terms which could be tested in a serious downturn. The business will need all the advice founder and shareholder Rowan Gormley can dispense.

The company trades on an enterprise value-to-ebitda ratio of a little above six against a mean of almost nine for comparable companies, according to S&P data. Naked’s modest rating rightly reflects shareholder nervousness.

The group has a record of disruption in the wine industry and a decent niche in the UK and US. It must now focus on profitability and financial resilience. Naked will provide a trading update in mid-October. Belying its name, it must show it is wrapped up warmly against the chill of an inflationary winter.

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