In a period of waning consumer confidence, it's a breath of fresh air to find a company like clothing retailer Joules (JOUL). Having only listed on the London Stock Exchange last year, the group has quickly proved its mettle as a quality operator. True, this kind of growth comes at a price, but we think it's worth paying based on the company's solid growth prospects, diverse revenue streams and stable margins. Furthermore, its disciplined and flexible attitude towards expansion should continue to keep its return on capital employed (ROCE) high.
- Rising margins
- Broker upgrades
- Strong return on capital employed
- Multi-channel business model
- Inflationary pressure
- Consumer confidence
As part of a full-year update earlier this month, the company said revenue had increased by 19.6 per cent year on year to £157m, which represents 18.6 per cent growth on a constant currency basis. The strong performance during the first half of the financial year was actually improved upon in the final six months and the crucial Christmas trading period was very encouraging. This is a reflection of the brand's UK expansion via new store openings, its push into international markets and positive responses to both new and existing ranges from customers.
The strength of the brand and management's focus on pricing is particularly evident in the progress made in company gross margins this year. Although no numbers have yet been disclosed, the board says it anticipates stronger gross margins as a result of a higher proportion of full-price sales, as well as distribution efficiencies and a favourable product mix within the international wholesale division. The company is also hedged against weaker sterling into the first half of the 2018 financial year. This has helped pre-tax profits for last year to come in "comfortably ahead" of previous expectations.
Retail revenues are growing fast, rising by 19.4 per cent on the prior year, driven by strong growth online as well as from the expanding store estate. The group opened 11 net new stores last year, but it's clear from ROCE that the group isn't expanding beyond its capabilities. Based on Sharepad data, ROCE has improved steadily each year since 2013, from 19.5 per cent to 29.2 per cent now.
The company's focus on customers has helped deliver this impressive result and brokers expect returns to remain among the best in the retail sector. Specifically, Joules has created customer-facing roles and is using central management systems to build customer profiles. This should help inform management's "channel agnostic" capital allocation decisions and maximise returns. New space will also be boosted by several store relocations this year, while US sales will benefit from bringing the distribution chain in-house from spring/summer 2018 - although this will bring with it some short-term cost.
JOULES (JOUL) | ||||
|---|---|---|---|---|
| ORD PRICE: | 298p | MARKET VALUE: | £260m | |
| TOUCH: | 297-298p | 12M HIGH / LOW: | 304p | 163p |
| FWD DIVIDEND YIELD: | 0.6% | FWD PE RATIO: | 30 | |
| NET ASSET VALUE: | 37p* | NET CASH: | £1.6m | |
| Year to 31 May | Turnover (£m) | Pre-tax profit (£m) | Earnings per share (p) | Dividend per share (p) |
|---|---|---|---|---|
| 2015 | 116 | 5.4 | na | na |
| 2016 | 131 | 7.5 | 6.9 | nil |
| 2017** | 157 | 10.0 | 9.1 | 1.6 |
| 2018** | 180 | 10.9 | 9.9 | 1.9 |
| % change | +15 | +9 | +9 | +19 |
Normal market size: 1,500 Matched bargain trading Beta: na *Includes intangible assets of £7.4m, or 8.5p a share **Liberum forecasts, adjusted PTP and EPS figures | ||||
