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FTSE: Joules shares crash 40% after profit warning

Joules, Nottingham City Centre
Joules said that dwindling consumer sentiment also forced it to offer more consumer discounts.

Clothing retailer Joules (JOUL.L) fell out of fashion with investors on Friday, crashing as much as 40% after it warned on profits.

The beleaguered company said trading had "softened materially" since its last update as the British heatwave hit demand for rain-proof and warm clothes such as jackets and wellington boots, as well as accessories.

It added that dwindling consumer sentiment also forced it to offer more consumer discounts.

Joules now expects a full-year adjusted loss before tax “significantly below” current market expectations, and is in discussions with its bank on a waiver of certain covenants on its loans.

Sales were down 8% year-on-year in the 11 weeks of its current financial year to date, with retail margins declining by around six percentage points since the start of the year.

Wholesale trading for the Joules brand saw 10% growth compared to the previous year, despite delays experienced at US ports.

However, its garden trading wholesale business was knocked by the wider slowdown in the home and garden market.

Read more: FTSE muted amid fresh wave of concern over UK economy

The firm indicated that it was managing cash resources “carefully” and that at the end of last month its net debt was £21.1m ($24.9m), leaving headroom under its bank facilities of £11.4m.

Joules’ share price has slumped by 90% over the last year amid disappointing sales, supply chain problems and rising costs.

“Just when you thought it couldn’t get any worse for retailer Joules, along comes another devastating profit warning,” Danni Hewson, financial analyst at AJ Bell, said.

“Customers have typically preferred to buy its goods if prices are slashed, so its margins have taken a big hit.”

It comes as fellow retailer Next (NXT.L) is believed to be taking up to a 25% stake in the company for £15m, however, there is no certainty that current discussions will lead to any agreement.

Read more: UK watchdog warns over buy now, pay later amid cost of living crunch

Hewson added: “Next doesn’t typically buy companies outright so it seems unlikely that an initial investment in Joules will lead to a full takeover. Instead, expect to see it become an influential shareholder and for more of Joules’ products to appear on Next’s website.

“Next has a system called Total Platform, which enables third party retailers to grow their sales without large capital costs, operational risks or time developing sophisticated infrastructure. This platform is already used by the likes Gap UK (GPS), Reiss and Victoria’s Secret (VSCO), with Next having also acquired equity stakes in these businesses.

“In essence, Next can offer more products on its website which makes it more attractive to customers, and it also earns a fee for handling the e-commerce needs of third parties.”

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