It has been a bruising week for the quoted retailers. Sentiment towards the shopkeepers’ sector was rocked by a damaging profit warning from ASOS (ASC:AIM) with the alert from the online fashion star turn triggering a sector wide de-rating and a large shift downwards in the outlook for many retail firms.

Yet Liberum Capital insists one name in particular has been unfairly caught up in the sell-off, namely premium British lifestyle brand Joules (JOUL:AIM), which it describes as a ‘diamond in the rough’.

Shares in the Market Harborough-headquartered clothing and accessories label have plunged since the summer, albeit they have risen 3p to 210p on support from Liberum today.

The broker says share price weakness leaves Joules trading at a discount to the wider sector, which includes the likes of structurally-challenged Debenhams (DEB) as well as the struggling Superdry (SDRY), on an enterprise value to earnings (EV/EBITDA) basis, despite the continuing growth on offer from Joules, a differentiated brand in an earnings upgrade cycle.

‘December’s very strong first half trading update (5 Dec) was in stark contrast to much of the wider retail sector,’ says Liberum – for more on this update, read Shares’ news story here.

The broker adds: ‘Strong growth continues across all channels, including retail, where we see many strategic and company specific reasons that provide more protection than other peers. The US is delivering further super-normal growth as the product proposition resonates across existing and new accounts.’

Liberum thinks Joules’ current valuation, anomalous given the healthy return on sales it generates, reflects market cynicism in its ability to deliver against analysts’ margin targets. ‘We think this is where there current opportunity lies,’ enthuses the broker, ‘as the stock market has applied somewhat of a broad brush stroke in the sector de-rating.’


So why is trading at Joules holding up so well when rivals are embattled and many face an uncertain Christmas and indeed future?

Liberum says Joules benefits from material growth in e-commerce and wholesale and, as such, the business has a lower dependence on retail store footfall than its peers.

'We note management’s “total retail” model, which includes taking a holistic view of its flexible store base and how stores can help support overall growth through multiple means, including acting as showrooms, driving click and collect and order-in-store, and facilitating customers’ returns.’

Joules’ products encompass womenswear and menswear, as well as homewares, accessories, footwear and ranges that cater for kids and babies.

In summary, Liberum argues: ‘Joules has a strong brand, heritage, low fashion risk and wide appeal. It is gaining share in the fast-growing premium lifestyle sector where multiple growth levers exist including stores, online, wholesale and international. Joules is relatively immature versus key peers leaving space for growth.'

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Issue Date: 19 Dec 2018