Joules Slumps Again After Fresh Profit Warning Puts Next Deal in Doubt

By Geoffrey Smith 

Investing.com -- Shares in Joules Group (LON:JOUL) slumped again on Friday after the struggling fashion brand said trading conditions had worsened since its last update only a couple of weeks ago - a development that puts a question mark over ongoing talks about an investment from larger rival Next PLC (LON:NXT).

Joules said it now expects a "significant loss" for the first half of its fiscal 2023 years, after trading "softened materially" in the five weeks through mid-August, leaving sales down 8% and retail margins down 6% from year-earlier levels in the first 11 weeks of fiscal 2023.

"While overall margins have been weak in the year to date, we expect partial recovery in the coming months as sales of full price Autumn/Winter collections become a more important part of the mix," the company said.

The expected loss leaves the company perilously close to exhausting its available liquidity. Net debt currently stands at 21.1 million pounds ($25.1 million), leaving headroom of only 11.4 million pounds as it scrambles to build inventory ahead of the key Christmas holiday season.

Joules shares were down 34% by 05:00 ET (09:00 GMT).

Joules said it expects to have to ask its bank to waive the covenants on its credit facilities. Whether the bank will do that may depend to a large extent on the progress of talks with Next over a possible equity investment and a distribution agreement that would see Joules' ranges included in Next's thriving online platform.

Joules repeated on Friday that "there can be no certainty that these discussions will lead to any agreement, and further announcements in this regard will be made if and when appropriate."

The company said it is "in positive discussions" with its bank regarding its liquidity needs, and also regarding its medium-term financing, "including a review of covenants to enable progress on the previously announced business simplification and cost reduction measures."

Joules has been forced into emergency cost-cutting after being caught out by the sharp slowdown in U.K. consumer spending this year, and by the continued difficulties in shipping to the U.S. owing to shipping bottlenecks. Figures released earlier by market research firm GfK showed U.K. consumer confidence slumped to a new all-time low in August, as inflation surged over 10% for the first time since the 1970s.