1st Feb 2022 20:40
(Alliance News) - Joules Group PLC's latest profit warning will be an unwelcome news for management given the retail sector's resilience to well-documented supply chain issues, as its performance falls behind internal expectations.
The retailer's share price tumbled on Tuesday, after it said revenue in the third quarter of its financial year has been behind management expectations, and its annual profit would shrink by nearly 20%.
The stock closed down 45% at 64.64 pence on AIM on Tuesday and is down 58% over the past 12 months.
The British lifestyle brand said that in the nine weeks ending January 30, revenue was 31% higher than the previous year, and 19% against a two-year comparative, but was still behind the board's expectations.
Revenue had been hit by multiple factors. The emergence of the Omicron variant had hit retail footfall in January, which was down 36% compared to two years ago.
It was also hurt by supply chain shortages, which delayed new stock arrivals. This led to fewer full-price sales, which reduced gross margins. Margins were also hit by increases in the costs of freight, duties and distribution.
Wholesale revenue suffered from the stock delays, in addition to customer cancellations.
Joules expects trading for the rest of the financial year to recover in line with previous expectations, as stock levels improve and footfall returns to normal levels. It reported a strong wholesale orderbook for its spring and summer collections.
Should recovery go as predicted, Joules predicts an adjusted pre-tax profit for its full financial year of "no less than" GBP5.0 million. This would be an 18% drop year-on-year, from GBP6.1 million in financial 2021.
In response to the current headwinds, Joules has tightened costs, targeting marketing, head office and general capital expenditure. It has also introduced minimum order value requirements in the US, and the cancellation of unprofitable orders.
The latest profit warning follows one in January 2020, while pre-Christmas alarm was sounded this past December on the back of an underwhelming Black Friday performance and is likely to heap more pressure on Chief Executive Officer Nick Jones.
The stock is down 76% since Jones took over the top job in late 2019 having previously been head of Asda's food, general merchandise, & George clothing business.
Russ Mould, investment director at AJ Bell said: "Retailers need to be well oiled machines in the current climate and Joules has clearly messed up by not running everything as efficiently as possible. All retailers have suffered from supply chain issues but plenty of them have sailed through thanks to good forward planning, something which Joules seems to have lacked.
"As a premium lifestyle brand, it needs to uphold a reputation for superior quality and that includes the way the business is run as well as the products. After numerous setbacks management will have to get the business back on track soon otherwise CEO Nick Jones could soon find he is fighting for his job. The share price is down approximately 70% since he became the boss and investors won't put up with that kind of performance for long."
By Arvind Bhunjun; [email protected]
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