Naked Wines plc (WINE) Earnings Call Transcript & Summary

Good afternoon, and welcome to the Naked Wines plc investor presentation review. [Operator Instructions] Before we begin, I'd like to submit the following poll. I'd now like to hand over to Rodrigo Maza, CEO. Good afternoon, sir.

Hello, everyone, and welcome to our FY '26 results presentation. We are very grateful for your time. My name is Rodrigo Maza. I'm Naked's CEO. I'll be presenting today along with Dominic Neary, our Chief Financial Officer. This is the agenda we'll go through. In FY '26, we delivered results in line with the strategy we set out in March of 2025. While our revenue declined, our focus on profitability resulted in adjusted EBITDA coming in ahead at $7.6 million, which represents a 35% year-on-year improvement at constant currency. We finished the year with $33.4 million in net cash, up $9 million, even after buying back over 10% of the company in recent months. In FY '26, we made an important call to transition from our legacy tech stack into Shopify, a move that will not only deliver an improved experience to our customers, but will materially reduce cost for Naked Wines. We saw customer satisfaction and retention strengthen from what was already a high baseline. This was driven by our focus on the elements that make Naked Wines stand out, the craft of independent winemaking, the people who make the product and those who fund them to do so and critically, the connection between them. Let me tell you more about this. In FY '26, we continue to investigate what makes Naked different and better in the eyes of our customers. We always start with the angels we have, especially those that have been loyal to us for a very long time. But we also talk to those who we want to recruit, but for whatever reason, have yet to bring in. And after literally thousands of interactions with all of them, we came to the conclusion that our customer value proposition needed some refreshing. While we remain focused on delivering high quality at a fair price, a reliable and trustworthy delivery experience, and we are making active investments in enhancing the shopping experience on our site, it's that direct meaningful connection between winemakers and Angels that people value most. It's what truly sets us apart, so we're doubling down on it. It's the consistent delivery of our customer value proposition that makes the Naked flywheel spin. When we fulfill our promises, Angels don't just stay, they recruit. Their funds allow us to back independent winemakers who armed with the data we provide can then offer more choice and better wines. As the flywheel turns, it generates more sales and resources that our team then invests in capabilities that allow us to deliver even more value to our angels, and so it goes. Every turn of the flywheel makes the business stronger. And for shareholders, that shows up directly as return on equity and capital. This isn't a linear model. It's a compounding one, and it's the lens for everything else we'll cover today. So over to you, Dom.

Thank you, Maza, and good morning, everyone. I'm going to take you through the FY '26 numbers and then walk you through the progress we've made against the first 2 of our strategic pillars, releasing cash and recalibrating to profitability. Maza will then take you through the progress we've made on a return to growth pillar after that. But let's start with the shape of the business today. For those newer to the story, a quick reminder of what Naked looks like. We finished the year with 486,000 Angels, our members across 3 markets. The U.K. is our largest with 49% of that. The U.S. is 38% and Australia, 13%. The health metrics matter as much as the size. NPS of 77 is really excellent. Member retention of 76% is also great as well. 93% of our wines are rated as like it by the peaked people who actually rank them. And behind all of that sit around 280 independent winemakers. And we can also, in the U.S., ship to over 90% of the population in what is a heavily regulated market. So we are deliberately a smaller business, but a demonstrably healthier one, and you'll see that theme running through everything today. Our headlines for the year on our key financial KPIs. First, net cash is GBP 33.4 million. So that's up GBP 3.3 million on last year. Underneath that, we actually generated GBP 9 million of cash because we returned GBP 6 million of that through the share buyback. Second, on to adjusted EBITDA. So that's before inventory liquidation and associated costs, which we'll come on to in a minute. This was GBP 7.6 million, up 35% at constant currency. And 3 things drove that. There were over GBP 11 million of marketing efficiencies as we focused on more profitable customers. Gross margin improved by 150 basis points on prior year, reflecting the impact of pricing and our savings initiative. And we saw the first contribution from our B2B services business of over GBP 300,000. And that's coming out of the new Sonoma facility, and we see upside for that in the future. Third, as I've already indicated, revenue is GBP 199.1 million, down 18% at constant currency. Now Maza will come back to this later, but essentially, there are 2 distinct impacts here, both of which mechanically reduce and lessen over the medium term. First is the mechanical unwind of the exceptionally large FY '21 and '22 cohorts. And second is our deliberate decision to stop inefficient acquisition spend from the second half of FY '25 onwards. This is the impact of resetting the model and the reason why EBITDA will grow progressively over the medium term. Finally, a loss before tax of GBP 6.3 million. Now there are over GBP 11 million of adjusting items and inventory liquidation costs here, which are truly unusual in nature. The first is this year's restructuring and also the write-down relating to the digital transformation as we move digital transformation from CapEx into OpEx. This is a really important part of our future savings and essentially is the driver, which will mean that ultimately, by the end of FY '29, we will see G&A GBP 10 million lower than it's going to be in FY '27. The GBP 5 million inventory liquidation costs will not be new to you. They're obviously painful to the P&L, but conversely, they are resulting in the cash delivery as we liquidate our inventory. We provide guidance to them later on as to how that will continue over the medium term. So what do the key strategic KPIs look like? Well, we've lined these up across the 3 pillars and the numbers here on a reported FX basis. So on releasing cash, free cash flow was GBP 10.6 million. So this is, as expected, lower than last year's GBP 18.5 million free cash flow as the significant inventory unwind matures. Return on capital employed is up from 9% to 12%, and that's helped both by the EBITDA growth and the buyback. On recalibrating profitability, gross margin, as I've already said, is up to 19.9%, a trend that's going to continue on as we go forward. That's up 150 basis points higher than last year. Acquisition breakeven has materially improved from 75 months to 42 months. For me, this is one of the most important numbers on this page. And adjusted EBITDA of GBP 7.6 million, including more than GBP 11 million of marketing G&A savings. As we move on to growth, NPS is excellent at 77% and up slightly on prior year. Retention is also up to 76% with particularly notable improvement in the U.S. and Australia. Customer acquisition costs and revenue per member both look slightly softer as reported, but both are actually improving in constant currency. So every KPI on the page is moving in the right direction, and we continue to anticipate ongoing improvements as we continue to implement the strategy. So that's the year-end numbers. Now we'll move on to the pillars and show you where we stand against the strategy we set out in March 2025. So as a reminder, the March '25 strategy carried 3 medium-term commitments. Firstly, on releasing cash, we were going to -- we committed that we would generate more than GBP 45 million by the end of FY '30. We've delivered GBP 9 million of that so far, so 20% of the way there in year 1. On recalibrating profitability, adjusted for FX, we committed to GBP 9 million to GBP 14 million of EBITDA over the medium term. At GBP 7.6 million this year, we are likely to reach that range early, potentially as early as FY '27. And on return to growth, we communicated a 5% to 10% exit growth rate. That's one still in progress. Acquisition breakeven has improved significantly to 42 months, and we're already seeing 24 months or better in FY '27. So the economics are fixed, but volumes are still too low. Maza will come back on this. So an honest scorecard, 2 on track or ahead and one where the machine works but isn't yet quite running at scale. Moving on to releasing cash from the balance sheet in a bit more detail. So we have GBP 33.4 million of net cash plus an undrawn facility of around GBP 19 million. So liquidity remains strong and is improving. Net cash is up GBP 9 million before the buyback. One thing to note, GBP 7 million of Angel balances now sit in a noncash obligation, and we anticipate this will keep growing over the medium term. On inventory, this is down around GBP 11 million since FY '25, of which GBP 4 million is FX and noncash, so movements in the provision. But there's plenty of upside left there. We're still carrying roughly GBP 27 million more stock than we were in FY '20, and we anticipate, therefore, significant cash coming out of this. Importantly, of course, the -- and I communicated this at the half year, the overstock is mostly in premium U.S. rents, and those typically have more than 10 years of shelf life. So this is a timing question, not a quality one. And on distributions, the GBP 6 million buyback is complete as of early FY '27. That's 10.5% of the share capital we had back in August 2025. We remain committed to substantial ongoing and ad hoc distributions over the medium term, and we will consider inorganic opportunities as they arise. Now all of this is governed by the disciplined capital allocation we've launched, which is the next slide. So our disciplined approach to capital allocation. This is how we make investment decisions, and the Board and management are completely aligned on this. Every material invested is tested against a new 20% IRR hurdle. Where returns clear the hurdle, we reinvest. Customer acquisition where the payback works, operational investments like the Fast replatform that Maza will be coming back to, inorganic opportunities where they arise and share buybacks when the share sits below the intrinsic value that the Board believes. Of course, when nothing clears that hurdle, the surplus will go back to shareholders as dividends. It's deliberately simple, and it's already working. We have GBP 33.4 million of net cash. We anticipate that this cash balance will be able to be reduced materially over the medium term. We've already delivered 20% of the GBP 45 million medium-term cash generation target. And because of this, we've bought back 10.5% of our shares. On to profitability, on cost discipline, we've now actioned GBP 25 million of savings against the original GBP 23 million target which means they've either been delivered in FY '26 or we've taken the actions, which will ensure that those savings are generated in FY '27. We stopped low ROI customer acquisition, and that's resulted in breakeven -- acquisition breakeven reducing from 75 months down to 42. Zero-based budgeting has been introduced and is now a part of our culture, and it's funding the GBP 5 million of SaaS transition costs, which historically we had told you we were going to be going to CapEx are now going to OpEx to G&A and are not leading to an increase in G&A because of the cost discipline and zero-based budgeting approach. On the P&L, gross margin is up 150 basis points, and that's from better first order losses, so better acquisition, better pricing. Improvements in retention and the improvements in lifetime value of about 35% to 40% in all markets. And we would also flag we've now got price rises of over 5% live in every market and with more to come. So just to double-click a little bit more into that pricing point. This is one of the most encouraging things that has happened this year. Now we knew we had room to raise prices. But rather than slipping them through quietly, Maza wrote to Angels and told them exactly what we were doing and why. And the response, and you can see some of it on the slide, was remarkable. Many Angels don't just tolerate the increases, they support them because they understand the money protects our independent winemakers. That's the connection at the heart of this business doing real commercial work. And the numbers bear it out. Increases of more than 5% are live in every market. You can see 150 basis points of margin improvement that will continue to improve in FY '27 and first order losses down 53% globally. And moving on to the medium term. We delivered GBP 7.6 million EBITDA, which is ahead of target and up 35% in constant currency, and that's EBITDA, excluding inventory liquidation adjusted. The replatform takes GBP 10 million of cost out versus FY '27 by the end of FY '29. So that is GBP 5 million of genuine future savings and GBP 5 million reduction as the transition costs are falling away. All of this makes us increasingly confident on both the scale and the speed of the medium-term EBITDA range, which we'll double-click into now. So this chart builds a bridge which explains our confidence as to why we are committed and why we believe in our medium-term EBITDA guidance and potentially better. So we start with the EBITDA range of GBP 7.6 million to GBP 9 million, which is the guidance we'll be coming to at the end of this presentation. So imagine we delivered that in FY '27. How would that build over the next few years? From there through FY '30, I'd highlight 2 EBITDA drivers that we ensure as a minimum, we deliver our medium-term goal. Firstly, even in a downside revenue scenario, we have already identified more than GBP 10 million of clearly identified cost savings, and that's the SaaS replatform implementation that I've already talked about. So clearly identified. We also now have a proven track record of delivering on our cost savings. So that alone gives us strong confidence that we will hit our medium-term EBITDA guidance. But on top of that, there are many other things which will be driving profitability in the future, and we've already seen and proven opportunities from already. One example of that is pricing. So we are assuming that pricing offsets COGS in our modeling. But actually, what we're seeing at the moment is that pricing will overdeliver on our cost of goods increases. And if pricing was just 0.7% above inflation, -- that's worth GBP 3 million of EBITDA on its own. And of course, that forgets other opportunities in COGS and variable costs, which we are pursuing as well. But the levers that take us beyond that range, potentially towards GBP 20 million and more are the commercial levers of retention and acquisition. These are the 2 dials that over deliver this plan. And on that note, I'm going to hand back to Maza to talk about the return to growth.

Thank you, Dom. Our revenue declined by 18% last year. That is driven by 2 factors: the expected attrition of the large FY '21 and FY '22 cohorts and the deliberate decision we made to walk away from inefficient acquisition investment. In FY '26, we've been extremely disciplined in ensuring investments clear tight IRR hurdles, which we knew would result in us acquiring fewer but much more valuable Angels. As we've deployed this strategy, we've seen breakeven improve materially, and we expect that trend to continue. The challenge we now face is how to scale our volume of new customers while maintaining a healthy LTV to CAC ratio. Let me walk you through how we've been tackling that. We've said it before, but it bears repeating. Growth at Naked Wines is a loop, not a funnel. The retention of our engaged community of Angels should be the main driver of our acquisition efforts, which should, in turn, convert more high-value Angels and on and on. The move we're making to Shopify will enable us to accelerate our results on both sides of the loop. Now let's go deep. Let me start with retention. It improved to 76% in FY '26, mainly driven by our U.S. and Australian markets. Our activity continues to revolve around discovery, where we've enhanced navigation ease across our range with personalized recommendations to help customers find their next favorite wine and then subscribe to it, which provides convenience to them and predictable revenue to us. Around delivery, where we've run several tests to determine if the rewards we offer to our customers actually deliver value to them while strengthening their connection to our brand. This has led us to double down on benefits that make a difference to our angels while reducing discounting activity and therefore, improving our margins. And most importantly, around community, where we've doubled down on telling the stories that we know Angels love and where we're actively involving them in decisions that shape our range and our offer. These actions have resulted in significant improvements in lifetime value across all our markets, and they give us confidence that this is the path we need to follow to go back to sustainable, profitable growth. We continue to run tests to confirm through reliable data, what's working and should be scaled and also what should be abandoned. As a result, we have validated that expanding our credit guarantee to all Angels improves both retention and order rates and that the free sample we offer our clients does, in fact, increase not only retention, but our contribution. What stood out most in FY '26 was the response we received from our Angels as we focused on reigniting the part of our community. Campaigns built around what makes Naked different generated some of the strongest engagement we've seen in years. Angels didn't just purchase. They shared, they advocated, they brought new people in. At our tasting tour all across the U.K. and from Victoria to Coravin to Sonoma, Angels and winemakers show up for each other. That's the kind of relationship no competitor can replicate."Craft, people, connection". That's our magic formula, and we'll keep on driving it home, which now leads me to acquisition. I've mentioned it already, but the discipline we've created is leading to consistent reductions of our customer acquisition costs and therefore, to our breakeven periods. Our acquisition activity is focused on 2 main engines, generating more high-quality demand and converting it more efficiently in our site. Both are underpinned by a single operating system consisting of reliable performance metrics and consistent investment guardrails. And we continue to run tests here, too. We found the acquisition offer that balances conversion and lifetime value improvement best. We continue to run ambition tests on our homepage, and we are assertively walking away from channels that fail to deliver healthy paybacks. We're using the power of our community for acquisition purposes, too. We found great creators who understand our brand and customer value proposition and they bring it to life in engaging ways. We're leaning more and more on our winemakers to attract high-value customers. We find ways to come together with our angels, such as a tasting tour, and they find ways to show up for winemakers as evidenced by our Coravin and Victoria campaigns, where customers rally together to provide support to communities in need. This has produced material improvements in our referral rates, but there's so much opportunity to accelerate this even more. And we need to as the lifetime value of s acquired through referrals is quite remarkable. We wanted to share an important preview with you today. As we close the first quarter of FY '27, we see that the last 5 monthly cohorts have delivered a breakeven of less than 24 months. This is amazing progress, and we need more of it. We're working on several levers to deliver it and the migration to Shopify will enhance our impact across all of them. We're very excited to partner with Shopify in this new chapter in Naked's journey. There are many spaces in which we believe this migration will enhance results for our company. They all come down to offering customers a more simple and convenient way to interact with us, one that recognizes their preferences and that celebrates their history at Angel's. And importantly, this migration will result not only in a better shopping experience, but in a more efficient business. We expect to capture circa GBP 10 million in cost savings by the end of FY '29, enhancing the profitability of our company. Regarding other channels, we continue to invest in B2B as a way to add resilience to our business. In FY '26, we leveraged our Sonoma facility to produce additional EBITDA and anticipate this becoming a meaningful profit driver over the medium term. And while the market remains challenging, we delivered GBP 4 million in B2B sales and are confident that the relationships we're building will yield relevant long-term results for Naked. Finally, we continue to monitor the market for relevant inorganic opportunities that might strengthen our business. Back to you, Dom.

Thanks, Maza. And on to post period end and FY '27. First, current trading, which is progressing as we would expect it to in relation to our medium-term guidance. In other words, consistent with profit growth and adjusted EBITDA and continued cash generation. It's worth noting that the price increases we discussed earlier have a fuller effect in FY '27 as we get a complete year of their benefit and ongoing future increases come online as well. Second, delivery on the plan has continued past year-end. The GBP 25 million of savings, which is ahead of that GBP 23 million target, is supporting the SaaS platform implementation, and we are reaffirming at least GBP 36 million remaining of the original GBP 45 million medium-term cash generation target. And capital allocation stays exactly as I described earlier. We're committed to ongoing and ad hoc distributions with a strict 20% IRR hurdle on every use of cash. And we continue to monitor inorganic opportunities as they arise. Now to the guidance itself, and this is across a performance range. Revenue of between GBP 158 million and GBP 175 million. The revenue impact there of focusing on profitable customers, but the impact of that lessens in FY '27 and will continue to do so over the medium term. Adjusted EBITDA, that's excluding inventory liquidation costs of GBP 7.6 million to GBP 9 million, so ahead of FY '26 and potentially delivering on our medium-term guidance 3 years early. Net cash of GBP 34 million to GBP 42 million, and we'll adjust that through the year for any share buybacks as they occur. As we've previously communicated, the majority of the inventory reduction has always been expected to hit in FY '28 to FY '30, and we continue to anticipate this dynamic. And we continue to anticipate around $14 million remaining of that $40 million remaining of inventory liquidation costs, which will be spread over the medium term, and that will help us to generate the cash that we've talked about from our inventory. So in short, cash keeps building and profitability continues to grow progressively. And over to Maza, who's going to wrap up.

So to close, FY '26 was a year of delivery. We're in a strong position, both in terms of profitability and liquidity and have developed a capital allocation mindset that will translate into disciplined investments over time. We said we'd generate at least $45 million of cash over the medium term, and we've delivered $9 million in FY '26. Still at least $36 million to go, but a strong start for sure. We're excited about our move to Shopify as we believe the enhanced experiences we offer our customers will translate into significant growth opportunities. In the words of one of our angels, we got our mojo back. We'll continue to double down on what makes Naked unique. It's all about craft, people and connection. As we share our FY '27 guidance, we are excited about our future. The best of Naked Wines is still ahead. Once again, thanks for joining today.

That's great. [Operator Instructions] And if I may just I'd like to remind you that recording of this presentation along with a copy of the slides and the published Q&A can be accessed by investor dashboard. As you can see, we have received a number of questions throughout today's presentation. And Dominic, can I please ask you to read out the questions and give responses where appropriate to do so, and I'll pick up from you at the end.

Thank you very much. Right. I'm going to take these questions in order. So the first one is about AGM resolutions. You must have come close to the top of your AGM resolutions on share buybacks this year. Any plans to amend these at the next AGM? And if so, how? Yes. So our AGM resolutions will be going out shortly. We are considering revised buyback resolutions, which will give us more flexibility. Whilst doing that, we're mindful of our capital allocation policy and ensuring we apply capital in the most effective manner. So that is answered. The next question is when do we expect revenue to stabilize? There's a couple of questions on this. As we've said, we are focusing on a business which is more profitable and part of that means acquiring fewer customers, and therefore, there will be a continued decline in revenue for the -- over the medium term. Saying that, we expect to return to stability over the medium term although that is more likely to be 28 or 29, possibly 30. The more important point, though, is, as we've discussed today, we are committing to ongoing and progressive growth of EBITDA. And we are increasingly confident of that guidance range that EBITDA will rise to at least 11 million to 14 million, and we envisage that happening at any -- even in our worst case downside scenario on revenue before revenue returns to growth. The next one is on the SaaS platform. So I'm going to hand this over to Maza, which is when will the transition to the SaaS platform to Shopify start and what are the transition risks?