Joules warns on profits amid supply chain issues, Omicron disruption

Joules warned over full-year profits on Tuesday, citing disruption from the Omicron variant and supply chain issues, among other things.

The lifestyle retailer said group revenue in the nine weeks to 30 January was 31% higher than FY21 and 19% higher versus FY20. However, this was below the board’s expectations, as was pre-tax profit.

Joules pointed to weaker-than-expected revenue in January, partly due to the impact of Omicron on footfall; delays to new stock arrivals due to global supply chain challenges; lower-than-expected wholesale revenue due to delayed stock and customer cancellations; and the continued impact on gross margin of increases in freight, duties and distribution costs.

The company also noted continued operational disruption, lower productivity, and higher-than-expected costs within the third-party operated Distribution Centre (DC).

As a result of all the headwinds, Joules said there would be "selected appropriate" price increases for the summer spring 2022 collection.

Joules’ base case expectation is for trading for the rest of the year to recover in line with its previously stated expectations, "supported by recovering footfall and an improved level of newness in the stock position".

Assuming the base case is met, adjusted pre-tax profit is not expected to be less than £5m, versus £6.1m the year before. Joules had previously guided to profits of between £9m and £12m.

For the six months to 28 November 2021, revenues came in at £127.9m, up from £95.4m the year before, while profit before tax and adjusting items was £2.6m, down from £3.7m. This was in line with previous guidance.

At 0845 GMT, the shares were down 39% at 72p.

Susannah Streeter, senior investment and markets analyst at Hargreaves Lansdown, said: "Joules is facing a spell of very inclement weather with the storm of omicron adding to the chill winds of supply chain issues. The foul conditions are not expected to improve any time soon, and with the slashing of full year profit forecasts, the share price has plunged.

"The group had already warned that it would be hard going for the six months to the end of November and profits fell sharply. But in the run up to Christmas and in the weeks that have followed, visits to stores slumped by more than a third, while operational costs doubled. For those shoppers venturing out, the lack of new styles available due to the problems of getting products into stores meant full price sales took a hit. Even though footfall should recover, with many more shoppers less fearful of venturing out, the rainy days still keep coming for Joules, with higher freight, distribution and labour costs drenching the business.

"Management say an umbrella is now up to try and protect it from a further slide in profits and emergency measures are being brought in. It sees little option but to pass on higher costs to customers, so prices will go up in some of its ranges but at the same time it’s offloading more unsold stock to outlets. This is not a strategy without risk as it could see cash strapped shoppers, opting for bargain basement Joules ranges in discount villages rather than paying higher prices for new styles in the group’s boutiques. There will be concern that by moving in this direction, the Joules ‘lifestyle’ may be less appealing to the discerning shopper and could cause longer term damage to the brand, particularly with marketing spend also set to be reduced."