Joules Group Plc – Operating with strong e-commerce sales growth

Joules Group Plc (LON: JOUL) is an AIM-listed general retailer Company, which design and sells clothing, footwear, homeware, and accessories.

Rationale for Valuation – Hold at GBX 151.00

• Joules has continued to deliver solid progress through the own digital channels, with an increase in gross platform demand of around 55%.
• The Company has shown strong growth in new customer acquisition, with effective digital marketing investment, the desirable, lifestyle locations of the Group's stores and the positive impact of the Friends of Joules digital marketplace.
• As per valuation metrics, EV/Sales multiple is currently lower than the Textiles & Apparel industry.
• In the last three months, the Company has delivered a sparkling return of ~48%, which was higher as compared to the FTSE AIM All-Share Index.
• From the technical standpoint, shares were trading well above the short-term support level of 50-day (GBX 124) simple moving average price, which reflects an uptrend in the stock.

Key Risks

• The market may remain challenging as customers make a fundamental shift towards the online marketplace.
• Though the Company has acknowledged the challenge, the evolution would not be easy without incurring additional cost.
• In the near term, business operations may be impacted due to COVID-19 Pandemic uncertainty and lockdowns in many areas.

Pre-Close Trading Update (in respect of the 26-week period ended 29 November 2020, as on 8 December 2020)

• In the period, the Company has shown a positive trend, with sales for the Period remaining ahead of the management's initial expectations.
• The increase was mainly driven by strong e-commerce growth, with an increase in revenue from Joules' own e-commerce channels of 45% and total e-commerce sales of 35% in the period.
• In the last three months, the Company witnessed strong growth in new customer acquisition. Currently, Joules' active customers were more than 1.5 million.
• For the period, Group revenue decreased by 15.3% year-on-year, with a decrease in total retail revenue of 6% year-on-year and total store sales of 46% year-on-year. The decline was due to the cancellation of country shows across the UK and the impact of enforced store closures.
• The Company has shown a strong balance sheet, with a net cash of £15.6 million and liquidity headroom of £64 million.

One Year Share Price Chart

 (Source: Refinitiv, chart created by Kalkine Group)

Valuation Methodology: Price/Earnings Approach (NTM) (Illustrative)

Conclusion

The Company has shown strong e-commerce growth, the increased number of Joules customers and the growing appeal of the brand. It delivered a good Black Friday trading period, supported by online channel and the Friends of Joules digital marketplace. Further, the Company is confident for the recovery of the wholesale channel over the coming seasons. However, the retail sector continues to face several near and medium-term challenges due to the ongoing impact of Covid-19 and Brexit-related uncertainties. Overall, the Company has shown strong momentum (mainly in the online channel) and a good stock position. It is also confident for the peak Christmas trading period, with a strong balance sheet. The stock made a 52-week low and high of GBX 32.80 and GBX 239.74, respectively.

Considering the uncertainties and market dynamics, we are currently maintaining the “Hold” stance on Joules Group at the current price of GBX 151.00 (as on 9 December 2020, before the market close at 8:48 AM GMT) and will recommend fresh buying at the right time.

*All forecasted figures and Peers Information have been taken from Refinitiv, Thomson Reuters.

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