LONDON (ShareCast) - Oriel Securities has maintained its ‘reduce’ rating and 430p target price on wine retailer Majestic, saying that the company’s profit warning on Thursday reflects a tough market.

“Majestic Wine’s profit warning this morning highlights a market in which competition is increasing and new store roll-outs are not delivering the required sales uplifts to compensate for declines for the existing estate,” the broker said.

Majestic said it now expects profit before tax (PBT) like-for-like (LFL) sales for the year ending March 31st to be flat on the previous year, while investments will likely keep a lid on profit growth next year.

After strong Christmas trading which saw LFL sales rise 2.8%, the company noted “challenging trading conditions” since the start of 2014.

Oriel estimates that LFLs had fallen by 4% over the last 10 weeks, with the timing of Easter having a 1.5% negative impact.

“Life at Majestic has got tougher […] The impact of this is a notable downgrade to numbers this year of 5% with PBT for the year ending 2014 expected to be flat,” the broker said.

The company’s guidance has also prompted Oriel to lower forecasts for the next two years.

“The pressure on Majestic Wine is unlikely to ease in the near future and we view risks to forecasts remaining on the downside, with the shares trading on 16 times our revised earnings for the year ending 2016.”

The stock was down 19% at 409p by 15:00.

BC

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