Joules has growth welly

Premium lifestyle brand is an immature global expansion play
Thursday 01 Dec 2016 Author: James Crux

 

A pullback at British, premium lifestyle brand Joules (JOUL:AIM) presents a precious opportunity to pocket an immature growth company with exciting global potential.

The cash generative retailer, riding a boom in quality casual attire, intends to pay a maiden distribution for the year to May 2017. At 185p, the wellies, gilets and jewellery purveyor offers 27% potential upside towards Liberum’s 235p price target.

Great Ideas - JOULES

Disciplined roll-out

Leicestershire-based Joules, founded by creative inspiration Tom Joule in 1989 and with origins in equestrian events and country fairs, is expanding rapidly through a self-funded store roll-out. The AIM newcomer, a top selling wholesale brand in Next Label and John Lewis, is growing from a smaller base than premium lifestyle peers such as Ted Baker (TED) and SuperGroup (SGP).

Consumer tastes in fashion are notoriously fickle, yet Joules’ distinctive brand has wide appeal and low fashion risk, since the focus is on refreshing or adding something new to proven, timeless classics.

Upgrade catalysts

Extension of the product range and international expansion through wholesale and online channels add to the allure of Joules, whose full year results (7 Sep) showed a 41.5% surge in underlying profit before tax to a forecast-beating £7.5m on sales up 12.8% to £131.3m. E-commerce sales shot up more than 17%, while CEO Colin Porter also flagged 33% growth in the active customer base to 824,000, demonstrating the brand’s growing international traction.

Catalysts for earnings upgrades going forwards include an untapped licensing income opportunity and international expansion, a key priority for Joules. Overseas sales represent a shade over 10% of the total and the medium term focus is on North America and Germany, though China, Japan and the Middle East are under evaluation.

Winter warmer?

For the current year, Liberum forecasts pre-tax profit of £9m for earnings per share of 8.2p (2016: 6.9p), leaving Joules on a punchy prospective PE of 22.6. Yet we believe the rating is justified by the retailer’s abundant growth potential.

The broker also sees Joules as a likely Christmas retail winner, pointing out Joules is well placed to benefit from sterling weakness-driven ‘staycations’ due to its rural and seaside bias.

‘Not only does this provide a smoothing of revenue profile compared to other retailers, but it could drive an incrementally strong performance over summer 2017,’ writes Liberum. ‘The company’s strong focus on value, mean that it mixes competitive pricing with high quality products, which positions it well it in the fast growing premium-lifestyle clothing category.’ (JC)


 

Joules (JOUL:AIM) 185p

Stop loss: 148p

Market value: £154m


 

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