- Trading softened materially
- Significant first-half loss expected
- Ongoing discussions with Next
Investors in ‘British lifestyle group’ Joules (JOUL:AIM) should be used to violent moves in the value of their shares by now, but that will be little comfort as they see the stock price plummet this morning.
After warning full year results will be materially worse than previously expected, Joules shares are down 36% to 27.8p reversing all the gains made following the news earlier this month retail giant Next (NXT) was poised to take a strategic minority stake.
EARLY WARNING
There were already signs all was not well in May when the firm warned the clothing market had become ‘more challenging’ over Easter as the rising cost of living drove customers to seek out more mark-downs.
This resulted in a drop in full-price sales, ‘significantly’ impacting margins in Joules’ own sales channels.
In addition, demand for home and garden products was ‘subdued’ with Garden Trading performing ‘significantly below expectations’ during its peak March-April sales period.
Things were obviously so bad that chief executive Nick Jones felt he had to take the rap and offer his resignation.
UNDER THE WEATHER
Unfortunately, going by today’s trading update things haven’t improved with the firm reporting that trading had ‘softened materially’ in the five weeks to mid-August.
Normally, blaming the weather is a last-ditch excuse for retailers but given Joules’ reliance on outerwear, knitwear, rainwear and wellies and the exceptionally hot, dry conditions of the last few weeks it’s not surprising retail sales have been poor.
More disappointing is the fact Garden Trading has failed to recover in the warm weather, which the firm puts down to the wider slowdown in the household spending.
As a result of soft recent trading and weak consumer sentiment, the company now expects a ‘significant’ loss in the first half and a full year pre-tax result ‘significantly below market expectations’.
NEXT STEPS
Among the few crumbs of comfort in today’s update is that ‘positive discussions’ with Next about adopting the latter’s Total Platform services and an equity investment are ongoing.
Given the firm only has just over £16 million headroom under its borrowing facilities, alongside its existing £21.1 million of debt, and it is approaching its seasonal borrowing peak, a cash injection from Next would be welcome.
