Naked Wines (LON: WINE) (OTCQX: NWINF) shares have had a really bad time of it these past few years. Anyone short WINE shares over the long term would have done very well indeed. But the declared short position is still 3.6% of the equity. Which means that a substantial portion of the London market believes things are going to get still worse. 3.6% might not sound very much when compared to some of the positions on the New York markets but for London that’s a lot - Naked Wines is the fourth most shorted stock in London at present. Shorting is just a less usual tactic in London than New York.
The boom during lockdown was followed by the bust at reopening, that we all already know. But the problems have continued. From the most recent trading information: “Sales in the first quarter of the financial year have been below expectations largely as a result of reduced levels of new customer recruitment.” The problem is customer churn - or that problem is customer churn. Not enough people become ongoing repeat buyers, it’s therefore necessary to continually recruit new buyers in order to maintain revenue. That’s of course expensive. Both the advertising to attract and also the discounts to gain that first order - £80 off the first case seems a usual enough enticement.
Naked Wines share price from Google Finance
The short bet from here is of course that things are going to continue to get worse. As that same report states: “Naked Wines plc announces that the release of its audited results for the 53 weeks ended 3 April 2023 (the "FY23 Results"), due on 6th July, has been delayed.” Well, we’re a month later and still not released as yet. As the saying goes, bad numbers take longer to add up than good. So that’s not encouraging - and nor is the inability to get the accounts done on time.
We’ve also this: “Naked Wines has appointed former CEO Rowan Gormley as chairman of the board, with immediate effect. Gormley, who announced his departure from Naked in 2019, later returned as an advisor in 2022. He will replace David Stead, who will step down as chairman and leave the board.” That leaves open the possibility of “kitchen sinking”. Which is where the incoming management declares that everything before them was a disaster, that valuations on near everything need to be written down. Throw out everything including the kitchen sink is the derivation of the phrase. The result of this would be that any future improvement in the business can be ascribed to that new management - a cynical thought but one that is correct often enough.
So it’s possible that the next set of results will be real stinkers. And that’s what the short bet is at Naked Wines. Now, whether the short bet is correct or not depends upon hte arrival of those accounts.