Premium lifestyle brand owner and retailer Joules (LSE: JOUL) appears to be navigating its way through the coronavirus crisis well.
Today’s half-year results report leads with the statement: “Accelerating digital sales support delivery of profits ahead of expectations for the period.”
The harsh environment for retail shares
Meanwhile, the current harsh economic environment has caused many other retailers to fail. But I reckon Joules has the potential to survive the crisis and emerge as a sector winner in the years ahead. I think the business has a good chance of resuming its growth trajectory as the pandemic fades. So, I’d consider it now for my long-term Stocks and Shares ISA.
Today’s figures show that revenue for the six months to 29 November 2020 declined by just over 15% year-on-year. But the company earned £3.7m in profit before tax and exceptional items. And that outcome is ahead of the directors’ previous expectations.
E-commerce sales from the firm’s own websites grew by more than 45% in the period. And the company said “strong” online sales for the seven weeks to 3 January “more than offset” the effect of store closures through the Christmas trading period.
Like big retailer Next and others, online business has been key to battling the effects of the pandemic. In many cases, customers have migrated to buying online if the stores have been closed. And the company is so focused on digital sales that in the report chief executive Nick Jones described the business model as “flexible and digital-led”.
One of the firm’s recent tactics was to establish the ‘Friends of Joules’ digital marketplace. And gross sales including that channel increased by almost 55% in the period “accelerating to 66% growth over the seven weeks to 3rd January 2021.” It seems the strength of the brand is keeping customers keen whatever the sales channel. And the company’s measure of active customers increased by nearly 160,000 over the six-month period to almost 1.6m.
Cash flow and growth potential
That trading success has been translating to decent cash inflows for the business. And the company reported a net cash position of almost £16m (ignoring lease liabilities), up from just over £2m year-on-year. That cash outcome is another figure coming in ahead of expectations.
Jones reckons Joules is “well-positioned” to grow as a leading lifestyle brand and digital marketplace. And I reckon there’s potential for the company to expand internationally as well as in the UK. The brand has already made “good progress” in the US and Germany, for example.
Meanwhile, with the share price near 149p, the forward-looking earnings multiple is near 20 for the trading year to May 2022. That looks like a full valuation to me reflecting the quality of the enterprise.
But one risk for potential shareholders now is that Joules may fail to make the double-digit percentage rebound in earnings that City analysts expect. If that happens, the valuation will look even higher and the share price could fall to compensate.
Nevertheless, I’m watching the retail share closely as a potential long-term hold with the aim of benefiting from growth in the years ahead.
