Don't buy Joules as a recovery play just yet
JOULES (JOUL:AIM) 178.5p
Original entry point: Buy at 258p, 31 January 2019
Unfortunately our bullish call on premium British lifestyle brand Joules (JOUL:AIM) hasn’t worked out. A slump in the share price has triggered our 200p stop loss following a poor Christmas trading update.
The shares are now in the recovery ward following a warning that full year underlying pre-tax profit will be ‘significantly below market expectations’.
While Joules delivered strong Black Friday sales, retail sales over the seven week festive period as a whole were ‘significantly’ behind expectations. Joules was unable to fully satisfy strong online demand during the Christmas sales due to ‘an internally generated stock availability issue’.
A poor Christmas, plus new tariffs impacting the US business and added supply chain costs means full year profit will disappoint.
Liberum downgraded its year to May 2020 and 2021 pre-tax profit estimates by 37% and 20%, to £10.1m and £14.4m respectively.
SHARES SAYS: Joules’ profit warning appears self-inflicted rather than reflecting fundamental impairment of the brand. But we’re very disappointed that this promising trade has turned sour. We want to see evidence that problems have been fixed before suggesting to buy the shares as a recovery trade.