Shares of struggling retailer Joules plunged by more than a third after it issued a profit warning that blamed a summer heat wave for falling sales of clothing such as jackets, knitwear and Wellington boots.
The company, whose share price has plunged 90% over the past year, said it is seeing consumers seek out discount clothing “amid a heavily promotional environment” as overall demand weakens due to the cost of living crisis.
In the five weeks to August 14, trading has “softened considerably.” Sales are down 8% year-on-year in the 11 weeks of its current financial year to date.
Retail margins so far this year have declined by about six percentage points year over year, as a result of shortfalls in full-price sales and the level of discount required to win over customers.
Joules, who said he now expects full-year losses to be “significantly below” market expectations, also said he had started “positive discussions” with his bank to waive debt covenants.
Its shares plunged 35% in early trading as investors reacted to the latest bad news.
“Just when you thought things couldn’t get any worse for retailer Joules comes another devastating earnings warning,” said Danni Howson, financial analyst at AJ Bell. “Customers have generally preferred to buy their products if prices drop dramatically, so their margins have been hit hard.”
The company said Joules brand wholesale trade achieved 10% year-on-year growth despite delays experienced at US ports, however its wholesale garden trade business has continued to be significantly affected by the broader slowdown in the home and garden market.
Joules reiterated that he continued to have “positive discussions” with Next about a £15m deal to take an equity stake and use its technology platform.
Last month, Joules, which has some 130 stores and employs more than 1,000 people, hired KPMG to help with efforts to improve “profitability, cash generation and liquidity margin.”
Joules currently has £11m of margin in its banking facilities and has traded an additional £5m to help meet working capital requirements. The retailer expects to be able to pay off his extended loan in November and is negotiating debt waiver agreements with his bank lenders.
“The group also continues to have positive discussions with its bank on its medium-term financing, including a review of covenants to allow progress on previously announced cost-cutting and business simplification measures,” the company said.
Earlier this week, Joules announced that Jonathon Brown, former omnichannel director at John Lewis, will become its new CEO starting in September.
Brown will replace Nick Jones, who resigned in May after three years as the company’s performance continued to slip.
Joules has been listed on the London Stock Exchange since 2016, and was founded in 1989 when Tom Joule started selling clothes from a rural showroom stall in Leicestershire.