After talking up the vast potential of Naked Wines for a decade, it seems somewhat cruel that Rowan Gormley was not at the helm of the business he founded when its sales really started to fizz.
With bars and restaurants shut, sales at the online wine merchant have soared by 76% over the past four months, putting Naked firmly in the Covid-19 winners’ enclosure.
Although he has moved on, that must taste sweet for Gormley, who encountered plenty of naysayers in the City before stepping down as chief executive last November. The South African passed the baton to Cambridge graduate Nick Devlin, his 35-year-old protégé. Can Naked’s new boss turn a short-term boom into long-term gains?
Gormley, 58, was something of a maverick in the stuffy wine industry. Naked Wines offers customers (“angels”) the chance to buy wines direct from independent producers for less than the bottles cost at the supermarket by investing as little as £20 a month into their online accounts. Cynics always said this was simply the clever marketing of cheap plonk.
The venture was acquired by Majestic Wines — which is also said to be having a bumper time — for £70m in 2015. Sceptics believed that the deal was a thinly veiled rescue mission of a loss-making and indebted start-up, but Gormley was soon in charge of the combined business and sold Majestic to private equity firm Fortress for £95m last year, getting rid of its stores.
At the time, the deal unnerved some institutional shareholders, fearful of losing a reliable cash cow and becoming dependent on a faster-growing but less proven venture. With the shares having more than doubled to 469p this year, any sellers probably wished they had stuck around.
Last year, Naked Wines grew sales by 14% to £203m but reported a pre-tax loss of £5.4m. Analysts at Investec expect losses to persist until 2023 as the business keeps ploughing money into recruiting new angels. This year, Naked expects its explosive sales growth to moderate to 40% as angels spread their wings outside the house a little more.
Before taking over, Devlin spent two years in California’s Napa Valley running Naked Wines’ American business — now the company’s biggest and fastest-growing, and seen as crucial to its prospects.
A cloud hanging over any online retailer is whether there will ever be decent profits selling third-party products. And Naked is not immune to the impact of job losses on consumer spending. It looks a good time to take profits and put the cork back in the bottle. Sell.
