Joules warns on profits despite booming sales
Joules confirmed on Tuesday that its results for the six month to November 28 were in line with its guidance as it saw revenues of £127.9 million (up from £95.4 million a year earlier) and pre-tax profit before adjusting items that was down to £2.6 million from £3.7 million.
But while the performance in the second half so far has been strongly ahead of the previous year, it's been behind the board’s expectations with the company being hit by most of the issues that are facing many other businesses at the moment.
On the plus side, it said group revenue for the nine weeks to January 30 rose 31% on the year and 19% compared to two years ago. But it had expected more.
It specifically called out the negative impact of the Omicron variant on retail footfall (down 36% vs the comparable period two years ago) and delays to new stock arrivals as a result of global supply chain challenges. This meant a lower full-price sales mix that dented revenue and the gross margin.
It also saw lower than expected wholesale revenue due to “delayed stock and customer cancellations, plus the continued impact on the gross margin of increases in freight, duties and distribution costs”.
And worryingly, there was continued operational disruption, lower productivity, and higher than expected costs within the third-party-operated distribution centre (DC). DC costs for December and January were around £1.2 million above expectations, which is more than double compared to the prior year.
Also, while in H2 so far and post-peak trading, wage rates have reduced, they’re still higher than seen in the comparable prior year period.
It all sounds like a perfect storm of highly frustrating negative factors for the firm and in response it’s “already taken a number of actions to simplify the business, reduce costs and improve margins”.
These include “cost restraint in marketing, head office and capex; liquidation of aged and slow-moving stock via outlets and third parties; simplifying wholesale operations including exiting selected UK and EU agent and third-party stockist arrangements, introducing minimum order value requirements in the US, and the cancellation of unprofitable orders; and selected appropriate price increases for SS22 reflecting the higher cost environment”.
So, apart from the news that sales rose on a one- and two-year basis, was there any other good news? Well, the board's “base case expectation” is for trading for the balance of the year to recover “in line with its previously stated expectations, supported by recovering footfall and an improved level of newness in the stock position”.
The SS22 wholesale order book “remains strong and the DC operation is normalising with delivery times back to standard service levels and productivity improved”.
As a result, pre-tax profit for the full year is expected to be at least £5 million, although at the bottom end of that forecast, it would be down on the year as it made £6.1 million a year earlier.
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