Bare wines: Beverage sales are on the decline

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The share price of Naked Wines, an online wine retailer in the UK, accidentally fell like the green bottle in a nursery rhyme. The group took a a sober look of the blow that inflation will bring to consumer demand. And telling investors not to worry about the status of the line of credit — as Naked did last week — made them very nervous.

It seems Pratam Ravi was also worried. A non-executive director representing shareholder Punch Card Capital resigned without explanation after just three weeks.

Naked pioneered the online model for selling wine in the UK, becoming a legacy rival to Majestic. The Aim-listed company offered oenophiles deals on wine from unusual or sought-after vineyards.

But financial performance was poor. Rising inflation and slowing economic growth leave the business, whose shares are 90 percent below the peak of the pandemic, looking severely challenged.

Some stay-at-home consumers have weathered the pandemic, boosting Naked sales. Now the hangover. Substitution in the wine business is not difficult. A cheaper bottle of plonk is easily available for value conscious shoppers at Naked’s main markets in the US and UK.

In a statement, Naked cited a $60 million credit line that it says remains committed, but the line has conditions that could be tested during a severe downturn. The business will need all the advice founder and shareholder Rowan Gormley can provide.

The company trades at an enterprise value-to-earnings ratio of just over six, compared with an average of nearly nine for peers, 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 sustainability. Naked will provide an update on the trade in mid-October. Living up to its name, it should show that it is wrapped warmly from the cold of an inflationary winter.

The Lex team is interested in hearing more from readers. Please let us know what you think of Naked Wines in the comments section below

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