Shares in Joules (JOUL:AIM) tumbled almost 25% to 148p after the clothing, footwear and homeware brand warned first half and full year profits would fall short of expectations as supply chain challenges overshadow an encouraging sales recovery at the Leicestershire-based retailer.

For the half ended 28 November 2021, Joules now expects to deliver adjusted pre-tax profit in the £2 million to £2.5 million range, down from £3.7 million a year ago.

While the company is confident of achieving strong sales growth and an improved profit performance in the second half, supported by a strong stock position and wholesale order book, the ongoing supply chain squeeze means full year pre-tax profit is seen ‘in the region of £9 million to £12 million’.

That is materially below the £15.4 million Liberum Capital was looking for and hinges on the absence of further significant Covid restrictions.

BLACK FRIDAY FALLS FLAT

Joules’ performance in November, which includes the important Black Friday period, proved disappointing as global supply chain issues resulted in higher costs and stock delays and labour shortages in its third party-operated warehouse resulted in product delivery delays to online customers, stores and wholesale partners.

These global supply chain challenges are expected to remain ‘during at least the second half of the group’s financial year’, cautioned Joules, which also warned of ‘increased consumer uncertainty as a result of the emergence of the Omicron coronavirus variant’.

BRICK AND MORTAR BOUNCEBACK

During the half, demand for Joules’ products remained strong, driving group sales 35% higher to roughly £128 million amid continued growth in active customers to 1.9 million.

Its brick and mortar stores delivered a strong performance, with sales up 80% against the prior year, which meant stores delivered sales that were just 3% behind the comparable pre-pandemic period two years ago, despite lower high street footfall.

E-commerce grew 14% and 54% on a two-year basis, with Joules’ online performance benefiting from the acquisition of Garden Trading and third-party e-commerce partners.

Wholesale revenue grew 16% year-on-year reflecting the reopening of wholesale partners at home and abroad, although supply chain disruption meant revenue remained significantly down on a two-year basis.

CEO Nick Jones commented: ‘While we have not been immune to certain industry-wide pressures including supply chain disruption and cost inflation, we remain focused on delivering the group’s long-term growth strategy.

‘We have continued to invest in the business to support our plans and, despite the high levels of near-term consumer uncertainty, we remain very confident in achieving the group’s exciting future potential.’

THE LIBERUM VIEW

Liberum Capital pointed out that first half sales growth of 35% demonstrates there is ‘strong demand for Joules’ product and good brand health. Against this, industry-wide supply chain issues have meant some higher costs, stock delays and extended delivery times, with a particular impact over Black Friday.’

As a result, the broker slashed its pre-tax profit forecast for the year to next May by 35%, from £15.4 million to £10 million.

‘This flows to outer years, effectively pushing our profit recovery profile back by a year,’ said Liberum, lowering its year to May 2023 pre-tax profit forecast by 29% to £15.4 million and its price target from 350p to 300p to reflect the downgrades.

‘Disappointing,’ conceded Liberum, ‘but the drivers are industry-wide factors and we continue to be optimistic on Joules’ medium-term outlook.’

Sticking with its ‘buy’ rating, the broker remains ‘encouraged by Joules’ much strengthened position over recent years, driven by its enhanced digital platform and capabilities, and its continued evolution into a true premium lifestyle brand, supported by the strong growth in its Friends of Joules marketplace and the acquisition of Garden Trading.’

READ MORE ON JOULES HERE

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Issue Date: 14 Dec 2021