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Try on Joules

The premium clothing retailer is reaping the rewards of investment in e-commerce
Try on Joules

Quality clothing company Joules (JOUL) expects to report a full-year underlying pre-tax loss of £2m-£3m this summer, with coronavirus partly to blame. But the group looks well-positioned for a retail landscape that is transitioning towards digital sales.

IC TIP: Buy at 112p
Tip style
Speculative
Risk rating
Medium
Timescale
Medium Term
Bull points

Cheap on EV to sales basis

Well-placed to capitalise on rise of e-commerce

Short lease lengths

Brand awareness is improving

Bear points

Low footfall as a result of coronavirus

Set to report annual pre-tax loss

Joules sells premium clothing via 128 stores across the UK and the Republic of Ireland, an online business and a wholesale division with more than 2,000 stockists; which it describes as its ‘total retail’ model. Joules’ conversion of wholesale customers into retail concessions gives it more control over its product delivery and brand, and this has coincided with a rise in brand awareness and record high ‘brand health this year’, as surveyed by YouGov. 

Its online channel, which accounted for around half of its retail sales last year, has recorded a 40 per cent sales boost since the lockdown. The strong performance prompted a round of forecast upgrades by the broker following marked downgrades earlier this year. While Joules is reopening stores, online retail demand is expected to remain strong, and we may be witnessing a permanent boost in the long-term trend of sales moving online. 

These preferences could help ensure a steady revenue stream for Joules during a possible second lockdown. The total retail model encourages complementary use of Joules’ channels, with a fifth of store transactions being made digitally last year, including click and collect. Click and collect should also help to offset a decline in footfall during the pandemic.

Nor will the premium nature of Joules’ clothing necessarily deter cash-strapped shoppers facing economic recession. Nearly two-thirds of consumers will shop less frequently over the next one to two years, according to EY, which may better dispose them to buying more expensive items when they do spend. This, twinned with growing sustainable attitudes towards clothes shopping could put Joules’ quality offering ahead of fast fashion retailers.

In spite of the recent turmoil, and with the help of a £15m placing, Joules closes its financial year in a net cash position of £4m and £53m of unused borrowing facilities. The cash position will fall as rent deferred during the pandemic is paid. But Joules has an opportunity to reduce its rent outlay in coming years. Over a third of its store portfolio has a ‘lease event’ within the next 18 months, while last year the group reported that its average lease length sat at an average of three-and-a-half years. This will afford Joules the chance to renegotiate rent or close stores and tailor its portfolio in response to the shift towards e-commerce. 

JOULES (JOUL)   
ORD PRICE:112pMARKET VALUE:£121m
TOUCH:112-119p12M HIGH / LOW:291p33p
FORWARD DIVIDEND YIELD:NilFORWARD PE RATIO:32
NET ASSET VALUE:48p*NET DEBT:104%**
Year to 26 MayTurnover (£m)Pre-tax profit (£m)***Earnings per share (p)***Dividend per share (p)
201715710.19.21.8
201818613.011.82.0
201921814.110.52.1
2020***190-2.6-1.9nil
2021***1934.73.5nil
% change+1---
    
Beta:2.0   
*Includes intangible assets of £20.0m, or 22.4p a share
**Includes lease liabilities of £53.1m    
***Peel Hunt forecasts, adjusted PTP and EPS figures