Fears that the mighty Joules Group (LSE: JOUL) clothing and fashion brand was set to disappear into the sucking quagmire of the stinking retail-sector swamp — along with many other well-known retailers — were blown away today when the firm released its pre-close trading update.
The firm’s share price had plunged almost 50% since the summer but came roaring back this morning. The headline on the report trumpets the news, “Strength of the Joules brand and flexible ‘total retail’ model deliver first-half profits ahead of initial expectations.” That’s what we want to hear – that’s ALWAYS what we want to hear – ‘ahead of expectations’ almost always means the share price is going up.
Strong e-commerce sales
The premium British lifestyle brand owner is talking about trading during the 26-week period to 25 November, which is the first half of the group’s 2019 financial year. Other retailers have been struggling, but not Joules. Revenue shot up almost 18% year-on-year, which the directors put down to “the strength of the Joules brand, the appeal of our products, the flexibility of the Group’s ‘total retail’ model in the UK and the rapid growth of our international business.” Indeed, sales abroad came in at 16% of the total, up from just over 11% a year ago, suggesting that the international opportunity could be substantial if overseas sales continue to gain traction.
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The e-commerce operation performed “particularly well” and now accounts for almost 50% of sales. I think that a strong internet presence is essential for any retailer if it is to survive and thrive these days, so I find the figure pleasing. The company said its integrated cross-channel model is “well suited to meet changing consumer shopping behaviours.” I reckon one manifestation of that is the way it is possible to stumble across a Joules outlet in perhaps unexpected places, such as concessions in larger stores and in out-of-the-way seaside towns around a quiet corner next to buckets and spades dangling from a window frame. It seems to me that Joules is determined to place itself directly at the point of maximum relaxation and wallet-opening!
Robust operational momentum
Looking forward, the directors are expecting difficult trading conditions to continue in the retail sector. They’ve got their hard-Brexit contingency plan in place, but overall think the strength of the brand, loyal customers and a “rapidly expanding” international business will carry Joules through to further growth. Overall, profit before tax for the full year should be in line with their expectations, so all is well in the colourful world of Joules.
So maybe it’s time to return to the shares. Today’s share price near 228p puts the firm on a forward-earnings multiple of 17 or so for the trading year to May 2019 and the forward dividend yield is just over 1.2%. That strikes me as a fair valuation considering that City analysts following the firm expect earnings to grow around 15% this year and 19% next year. Joules is a great British success story and I’m tempted by the shares right now.
