- Cash-strapped Joules warns of potential CVA
- Sales hit by mild weather
- High promotions hurting margins
Embattled clothing, footwear and homeware brand Joules (JOUL:AIM) is in talks with investors including founder Tom Joule over a much-needed cash injection as sales at the self-styled ‘premium British lifestyle group’ continue to disappoint despite the group highlighting ‘good progress’ with its turnaround plan.
Having recently returned to the company in an executive role as product director, Tom Joule is one of a number of ‘strategic investors’ in talks to provide a ‘cornerstone investment in an equity raise’, said Joules.
And with poor sales pressuring its working capital position, the Leicestershire-based retailer known for its posh wellies also warned it is continuing to explore a possible company voluntary arrangement (CVA), a form of restructuring which usually sees a firm agreeing delayed or reduced payments to landlords or other creditors.
Shares in the struggling retailer slumped 26% to 10.1p on the alarming news.
WRONG KIND OF WEATHER
Since updating the market in August, Joules’ active customers are in growth and the company insisted ‘brand health and awareness key performance indicators (KPIs)’ have ‘remained strong’.
However, the struggling retailer also warned trading overall for the 11 weeks to 30 October 2022 was behind the group’s expectations, pinning the blame for poor sales on falling consumer confidence and dwindling disposable income as well as recent milder than expected weather, which hit demand for jumpers, coats and wellies.
MARGIN MISS
Online sales were weak in the period as the e-commerce pandemic boom continued to fade, though brick and mortar stores sales were ‘slightly ahead’ of expectations.
Joules’ retail margins benefitted from its improved pricing and delivery proposition, but this was offset by the ‘high levels of promotional activity across the market, leaving overall retail margin performance slightly behind expectations’, bemoaned the company.
At the end of October, Joules’ net debt was a chunky £25.7 million and the company is in talks with Tom Joule and its lender with regards to a ‘bridge financing proposal’ in order to enable continued progress with its refinancing plans.
THE EXPERT’S VIEW
AJ Bell investment director Russ Mould commented: ‘Discussions to raise more money are ongoing and founder Tom Joule is seen as a potential saviour on this front. This puts the entrepreneur in a difficult situation - does he hand over yet more cash to keep the ailing business from collapsing, or does he stand aside and hope that his creation finds an alternative way of staying afloat without him risking more money?
Mould continued: ‘The fact Next (NXT) pulled out of investment talks in September with the retailer would suggest Joules could unwind as easily as a cat pulling yarns from a woolly jumper. The clock is almost certainly ticking with regards to getting more cash through debt or an equity investment.
‘Next might have taken a page out of Mike Ashley’s playbook - wait in the wings in case the target goes into administration and then pick up the brand on the cheap. This strategy would mean Next doesn’t have to bother with the operating business and its associated problems.’
DISCLAIMER: Financial services company AJ Bell referenced in this article owns Shares magazine. The author of this article (James Crux) and the editor (Steven Frazer) own shares in AJ Bell.
