Omicron and supply chain issues hamper Joules profitability

Further to the trading update in December, the Joules Group has confirmed its financial results for the six months were in line with previous guidance with revenues of 127.9 million pounds compared to 95.4 million pounds in the first half of FY2021 .

It made a profit before tax and pre-adjusting items of 2.6 million pounds compared to 3.7 million pounds in the previous year.

The company said in a statement that group revenue for the nine weeks to January 30, 2022 was up 31 percent against FY21 and 19 percent against FY20, however, this performance, along with the group's PBT performance over the same period, is behind the board's expectations.

The company added that the negative performance reflects weaker than expected revenue in January, in part as a result of the negative impact of the Omicron variant on retail footfall, which was down 36 percent versus the comparable period two years ago.

Other issues included delays to new stock arrivals as a result of global supply chain challenges, resulting in a lower full price sales mix; lower than expected wholesale revenue due to delayed stock and customer cancellations; continued impact on gross margin of increases in freight, duties and distribution costs; and continued operational disruption, lower productivity, and higher than expected costs within the third-party operated distribution centre (DC).

Cost cuts

To recover sales and profit, the group plans to 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 price increases for SS22 reflecting the higher cost environment.

The board anticipates recovery in line with its previously stated expectations, supported by recovering footfall and an improved level of newness in the stock position. The company further said that the wholesale order-book for spring/summer 22 remains strong and the DC operation is normalising with delivery times back to standard service levels and productivity improved.

Assuming the board's base case is met, adjusted PBT for the full year is not expected to be less than 5 million pounds compared to 6.1 million pounds in FY21.