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The City

Published:  18 January, 2007

What consumer spending slowdown? That might well be the question posed by Majestic Wine's latest annual figures.

While other parts of the high street bemoan falling sales, Majestic continues to set records.

In the year to 28 March, total sales were up 9.6% to 162.5 million, while like-for-like sales grew by 8.3%. The group's operating profit was up by 21.6% to 12.7 million, while profits before exception gains, tax and amortisation rose by 23.9%. The dividend is being increased by a third.

True, the figures are not as sparkling as in 2004, but the only reasons Majestic's shares have not continued their journey into the stratosphere is because some investors think that they are sky-high already, and because the retiring chairman, John Apthorp, has been selling down part of his stake in the company.

But there can be little doubt that Majestic's formula is a winner. The results marked its twelfth consecutive year of record profits, while other figures support the company's status as an extremely solid stock. The number of customers on its database who made purchases in the past year rose by 8.95%, and the price of the average bottle rose to 5.51, while the average transaction rose to 113. What that shows is that Majestic is grabbing market share from its rivals, and with only 4% of the UK wine market, it has plenty of scope to take a lot more, especially as some estimates put the market's annual growth rate at about 6%.

The group now has 122 outlets in the UK and chief executive Tim How reckons there is the potential to expand to 200 over time. He even knows where he might pick up some sites quite cheaply - the closed showrooms of Rover dealerships. They will be of the right size and in some prime locations, but are hardly likely to command a premium price in the present high street property market.

Majestic's shares are about 20p below their 12-month high of 288.5p, but investors can hardly complain. In the past five years, the total return on the shares is about 250%, and they have outperformed the London market by a factor of fourfold. Majestic's shares are listed on the junior Alternative Investment Market, where they have outstripped their peers by 550% over the same five-year period.

With the shares on a forward multiple of 17 times this year's earnings, they are more highly rated than those of almost any British retailer, and while Tim How says it would be foolish not to note what is happening elsewhere on the high street, he can point to sales in the first 10 weeks of the current financial year to 6 June having risen by 7% on a like-for-like basis - a slowdown, but the sort of problem' all other retailers would welcome.