14th Nov 2022 17:24
(Alliance News) - Joules Group PLC's slip into administration was an outcome analysts at Shore Capital Markets saw coming, as the lifestyle retailer has grappled with a spate of bad news in recent months.
Numerous profit warnings and a breakdown in rescue talks with Next PLC have knocked market confidence in the stock. Next and fellow FTSE 100-listed retailer Frasers Group PLC are touted as possible companies to snap up Joules assets. The latter has recently developed a reputation for seizing troubled brands.
"Joules has been a remarkable tailspin story that has, frankly, reached a position that has seemed
increasingly inevitable in recent times, the application for administration," analysts at Shore Capital Markets said.
"With this news, there will be understandable worry for its employers and suppliers. We now await to see how the administration process progresses; will founders re-emerge, could there be trade interest in the brand. Frasers and Next have been 'hoovering' failing labels in recent times - or will the brand disappear? Time will tell."
Should Joules "re-emerge" from its ashes, Shore expects it to be a "smaller venture".
"[It will] represent another notch in UK apparel retail industry capacity reduction, following on from the more major rationalisation by Arcadia and Debenhams that represent a material positive for the rest of the trade, removing surplus capacity and disruptive promotional activity," Shore added.
Shares in Joules were suspended on Monday. It said refinancing discussions failed and it will call in administrators.
Joules shares have lost practically all their value over the past 12 months, amid a series of profit warnings and failed talks for an investment by larger peer Next.
The Leicestershire, England-based last week said it was in talks with founder Tom Joule and its lender about obtaining a bridge loan, as recent weak trading had left its working capital position below expectations.
However, on Monday, it said those discussions "have not been successful and have now terminated."
Joules previously had said that its net debt stood at GBP25.7 million at the end of October, leaving headroom of GBP11.4 million.
However, Joules said this headroom was reduced by GBP5.6 million, representing 'trapped cash', which is cash held in transit by payment providers and others. Headroom also will be reduced by a GBP5 million repayment of the company's short-term revolving credit facility, due on November 30. That leaves just GBP800,000 in headroom.
A rise in popularity for athleisure retailers has put pressure on sales of the company's outdoor range, Hargreaves Lansdown analyst Susannah Streeter commented.
"It's not just the cut-back in non-essential spending by consumer which have caused Joules' woes. Hot weather put a big dent in its core range of jackets and wellies, but Joules might have weathered this particular storm if its product ranges had been better diversified and the design teams had kept up with the trends. The apparel retailer, once the darling of the outdoor set, had become stuck in a rut – as athleisure wear took over as the casual clothes for the younger generation and even Joules' core customers, started falling out of love with the staples of its floral and fashion ranges," Streeter said.
"It can be hard for a brand based on British heritage to move with the times, but Joules' demise shows, fast-moving fashion trends can cause serious damage to slow coaches."
AJ Bell analyst Russ Mould struck a similar tone, labelling Joules as "an old boot" and not the "posh welly" it may have once been.
"Lots of things have led us to this point, with the failure of Next to come to the rescue the straw that broke the camel's back, but ultimately Joules' proposition wasn't robust enough to withstand such a bleak economic backdrop. Joules is neither a luxury brand nor does it offer compelling value and the premium high street space looks particularly vulnerable in an environment when there is so much pressure on household budgets," Mould added.
"This has been compounded by some poor decision making, unhelpful weather – though blaming the weather is never a great look for a business – and supply chain problems. Joules’ cash and stock management have also been far from perfect, though it is fair to acknowledge the current storm would have tested even the most robust balance sheet"
By Eric Cunha; [email protected]
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JOUL.LNextFrasers Group