Joules Group (LON: JOUL) shares are down another 35% this morning as the company reveals a trading update. Given the results in that, there’s also a board change and a revision to the strategic plans. Which, given what those results are seems like a sensible thing to be doing.
The CEO, Nick Jones, is to go. This is not – not announced at least – as a move to something else, it’s just a leaving. Joules also doesn’t have a new CEO in mind, they’re about to start looking for one. This is then, reading between the lines, the CEO being tossed overboard given the results.
In terms of the strategy, it’s all about reducing wholesale costs, shortening lead times – a fashion group really isn’t going to be able to compete well if it remains with long lead times – by up to 4 months. This also means diversifying the supplier base away from China. As with many other fashion brands, there is that trade-off between price and speed of turnaround of an order.
That’s all very sensible. But the actual trading results are a continuation of what we’ve already heard from Joules Group. As with the last time they reported revenue up the shares have gone down – because that increase in revenue is not being achieved at full price and full margin. This is the heart of the reason why JOUL was down 75% just in two months around the beginning of this year.
The base problem here is that consumer behaviour just isn’t buying that Joules brand. The aim and purpose of being a brand, having a brand, is that folk will pay premium prices for the product. Now, what the company says is that trading conditions are tough overall. Rising inflation – and wages not keeping up with it – mean that people will only buy stuff at promotional prices. This means that while revenue is increasing margins are compressing – because things have to be discounted to move them off the shelves.
Well, yes, OK, that’s possibly true. But if that is the case then the conclusion is that the Joules brand isn’t doing its intended job of being a brand – a brand being the very thing which leads to premium, not promotional, sales being made.
As to what happens next to the Joules share price that rather depends. Who the next CEO is will, when announced, possibly provide a movement. In either direction that is. If they land a well-respected heavyweight then maybe the inclination will be that a turnaround can be achieved. In the medium term that shortening of lead times could revitalise. Being able to actually be current with offerings rather than have to sell what was forecast many months back could aid.
Any trade in Joules Group now really does have to be driven by beliefs in the possibility of a turnaround. How likely traders think that is should be the guide to trading positions.
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Tim Worstall is a freelance writer specialising in economics and the financial markets.