Joules feels the chill, self-inflicted supply chain issues hit festive trading
We’ve become very used Joules reporting a succession of upbeat sales and profit figures so it was something of a shock when on Friday its Christmas trading update was less than rosy and included a profit warning.
The fashion lifestyle retailer seems to have been no more immune to the challenging conditions in the UK than its peers were and said its festive season sales fell.
On the upside, it said it has performed in line with its expectations in H1 and enjoyed a “a strong sales performance over the Black Friday trading period”. But overall in the seven week to January 5, retail sales from stores, concessions and online “were significantly behind expectations”. They fell 4.5% year-on-year having risen 11.7% in the 2018 festive period.
So why the difficult times at a usually-high-performing business? The company said the fall was partly self-inflicted and “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”. It added that while “encouragingly, traffic to the group's website grew by 8%, conversion was significantly down due to the stock availability issue”.
That must have led to a lot of frustrated customers as the larger number of shoppers going to its webstore couldn’t buy what they wanted, which isn’t where companies want to be during the year’s busiest shopping season.
That said, the group's other retail channels, including stores and third-party concessions, where it had good stock availability, performed “in line with expectations”.
And it seems to be working hard to make sure the issues don’t happen again. The company said that to support its further growth, it “has taken strategic decisions in relation to its supply chain operations: establishing an outsourcing partnership with a leading logistics provider to operate and enhance the group's UK logistics operation and also transitioning our US distribution centre to a new partner”.
Of course, that will add to its costs “during the transition phase” but is expected to deliver “significant cost benefits from the end of FY21 onwards”. The firm also expects second-half cost headwinds as a result of US-China tariffs, which it expects to continue into next year.
So where does that leave the profits outlook for the year to May 31? It seems that FY20’s underlying pre-tax profit “will be significantly below market expectations”.
CEO Nick Jones said the company is “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.
“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 should hear more when the firm announces its half-year results on January 21.
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