Investors love a classic growth story. Underlying pre-tax profits at Joules (JOUL) are 90 per cent ahead of where they stood at the time of the seaside clothing chain's float in May 2016, and we think there is much further to run as the company perfectly caters to modern shopping tastes and behaviours. The group’s disciplined approach to new store openings made it one of the best performers in our recent feature on retail property leases, while investments in online services and distribution leave it well-placed to meet the demands of millennials. The shares command a premium rating, but given the early stage of the group’s life as a public company, not to mention its consistent outperformance of market expectations, we think it’s a quality stock worth paying for.
Strong half-year results
Good online growth
Lean property portfolio
Increasing international footprint
Premium rating
Competitive environment
Joules is riding an earnings upgrade wave. Indeed, forecasts were nudged up no less than twice in January. First for a Christmas trading update that reported 19 per cent sales growth and hinted that 2018 was shaping up well. A subsequent round of analyst upgrades accompanied the interim results at the end of the month, which reported a 26 per cent jump in underlying EPS. Analysts at Liberum, having already pushed through an earnings upgrade of 6 per cent on the back of the Christmas figures, decided to crank up annual forecasts by another 3 per cent in response to the interim performance. Meanwhile, there seems plenty of scope for further positive surprises with the likes of Peel Hunt explicitly keeping upgrades “conservative” given the level of investment planned for the current year, as the company is busy building out a US sales team and developing a head office in the UK.
The half-year numbers only went up until the Black Friday weekend, but combined with the Christmas update it shows there’s been no let-up in trading. The performance of some peers, meanwhile, has been decidedly patchy. This resilience is unsurprising when you consider that the number of active customers has grown by 55 per cent over the past three years, outstripping store space expansion of 23 per cent. This reflects the success of both wholesale and online sales. The wholesale business in the US is taking off, with a doubling of the spring/summer order book. Meanwhile, first-half international sales rose by more than a quarter to represent 11.3 per cent of group revenues.
Even the gross margin is nudging ahead – something other retailers are finding difficult to achieve in a competitive environment plagued by unfavourable currency movements and higher business rates. At the operating level, there is also plenty of scope to drive profits higher, with an underlying operating margin of about 7 per cent compared with 12 per cent at close rival Ted Baker (TED).
| JOULES (JOUL) | ||||
| ORD PRICE: | 324p | MARKET VALUE: | £284m | |
| TOUCH: | 316-324p | 12-MONTH HIGH: | 339p | LOW: 239p |
| FORWARD DIVIDEND YIELD: | 0.9% | FORWARD PE RATIO: | 25 | |
| NET ASSET VALUE: | 38p* | NET CASH: | £3m | |
| Year to 31 May | Turnover (£m) | Pre-tax profit (£m) | Earnings per share (p) | Dividend per share (p) |
| 2016 | 131 | 7.5 | 7.9 | nil |
| 2017 | 157 | 10.1 | 9.2 | 1.8 |
| 2018** | 186 | 12.7 | 11.5 | 2.3 |
| 2019** | 209 | 14.5 | 13.2 | 3.0 |
| % change | +13 | +14 | +15 | +30 |
| Normal market size: | 1,000 | |||
| Matched bargain trading | ||||
| Beta: | 0.62 | |||
| *Includes intangible assets of £11.4m, or 13p a share | ||||
| **Peel Hunt forecasts | ||||
