British lifestyle brand Joules has taken a number of strategic decisions in relation to its supply chain operations amid a warning that its annual, underlying pre-tax profits will be “significantly below” market expectations as a stock availability issue hampered Christmas trading.
In a trading update, Joules said for the seven-week period to 5 January, retail sales were significantly behind expectations and decreased by 4.5% against the prior year.
“This was a result of disappointing online sales performance due to an internally generated stock availability issue through the important end of season sale event, the cause of which has now been addressed,” the company said.
Elsewhere, Joules noted traffic to its website grew by 8% but added conversion was significantly down due to the stock availability issue.
The group’s other retail channels, including stores and third-party concessions, where it had good stock availability, performed in-line with expectations, while Joules also cited a strong sales performance over the Black Friday trading period.
But it was not enough to offset a profit warning by the lifestyle brand which said it now anticipates FY20 underlying profit before tax will be significantly below market expectations.
“We are disappointed with our inability to fully satisfy our customers’ demand through our online channel during the important Christmas sale period. We have identified the root cause of this one-off issue and have taken steps to prevent its reoccurrence,” said CEO Nick Jones.
“Demand for the Joules brand and its unique products remains strong, with continued growth in total customer numbers and website traffic as well as robust results in our stores and partner retail channels.
“We remain focussed on continuing to expand the Joules brand and are making significant enhancements to our supply chain operations in the UK and US to deliver both future capacity growth and efficiency.”
These steps include establishing an outsourcing partnership with a leading logistics provider to operate and enhance its UK logistics operation and also transitioning its US distribution centre to a new partner.
Joules warned while these initiatives will incur incremental non-recurring costs during the transition phase, it expects them to deliver significant cost benefits from the end of FY21 onwards.
In addition, the group said it also expects second-half cost headwinds as a result of US-China tariffs, which it expects to continue into next year.
Kate Ormrod, lead retail analyst at GlobalData, notes after 2018’s festive trading triumph, Joules’ Christmas 2019 performance all but crumbled, leading to its share price falling 20% on Friday (10 January) and making these results one of the big shocks of the Christmas update season so far.
“Worse still is that it was self-inflicted, with a stock availability issue which hindered its online performance during the end of season sale,” she adds.
“While Joules’ H1 performance was indeed more muted than we have come to expect (group revenue +1.3%), it had reported positive trading momentum in stores and online across October and November, with revenue rising over 9%, including a strong performance over Black Friday. A failure to capitalise on this and drive online conversion, as traffic rose 8% on the year, is a tough lesson to learn at such a crucial point in the year.
“Though Joules states that it has addressed the cause of the issue in order to prevent a repeat performance, the damage is already done, with Joules now anticipating that its underlying profit before tax for FY2019/20 will be significantly below current market expectations.”
On a positive note, Ormrod says the group reported that stores and concessions, where there was good stock availability, performed in-line with expectations, indicating that Joules was still a destination for gifting over the festive period.
She adds: “Indeed these Christmas results should not read as conclusive proof that Joules’ brand appeal is on the wane, but the retailer will need to show a significant improvement in retail sales in the remainder of H2 to prove any doubters wrong.”
Joules will announce its interim results on 21 January.