Joules mulls CVA, but firm says it's making progress
Struggling Joules Group issued a business update on Monday that contained a mixture of both good and bad news, but more of the latter than the former. The company claimed that it's making progress, but also said that trading has been below expectations.
It has seen “the continuation of the trends highlighted in the 19 August statement. Active customers are in growth, and brand health and awareness KPIs have remained strong. However, trading overall for the 11 weeks to 30 October has been behind the group's expectations”.
It blamed the challenging UK economic environment that has dented consumer confidence and disposable income.
In addition, while dresses, menswear and more formal product categories “have performed well”, larger core cold-weather categories such as outerwear, wellies and knitwear have been partly hurt by the milder-than-expected weather.
The long-range weather forecast is predicting colder temperatures later this month, which could help the business on this front. But it seems that however much consumers like its products, they're very vulnerable to the weather and the prevailing economic environment.
The company also said retail e-commerce sales have lagged expectations, particularly due to softer online traffic, for the reasons already mentioned.
While retail margins have benefited from an improved pricing and delivery proposition, this has been offset by the high levels of promotional activity across the market, leaving overall retail margin performance slightly lower than predicted.
And the good news? Sales in physical stores at least have been slightly ahead of expectations. Friends of Joules “continues to perform well, with updates to its proposition further leveraging its appeal”.
Additionally, UK wholesale for the Joules brand has “performed well and has been in line with expectations”. That said, wholesale performance overall has been impacted by underperformance for the acquired Garden Trading business and in US wholesale.
The company added that it has made “good progress in defining and delivering its turnaround plan as well as continuing its focus on cost control and cash management”.
It said wholesale simplification and the exit from EU and US territories are near completion; a new leaner, simpler organisation and leadership structure is in place; channel cost and margin optimisation changes will be complete by December; a revised trading, promotion and buying execution approach is well under way; and changes to the product process and sourcing model are all complete.
The last of these points is key and the company said that under the leadership of returning founder Tom Joule, in his capacity as Product Director, a “new product design and development process is in place to drive further substantial improvement in product quality and design”.
As for its financial position, the company previously said it’s assessing its ongoing financing requirements, including a possible equity raise, to allow it to strengthen its balance sheet and support the turnaround plan.
Since that announcement, it has “advanced discussions with a number of strategic investors, including Tom Joule, to provide a cornerstone investment in an equity raise”. But it’s “continuing to progress alternative options with the assistance of Interpath Advisory, including CVA planning”.
It also remains in discussions with its lender about a waiver of certain financial covenants in its existing facilities and on its medium-term financing, including a review of covenants, to support the turnaround plan.
The trading underperformance has resulted in its working capital position being below expectations. So it's also talking to Tom Joule and its lender about “a bridge financing proposal in order to enable continued progress to be made with the re-financing plans referred to above”. There’s no guarantee that will happen though, in which case it would be unable to repay a £5 million amount due at the end of this month under its short-term revolving credit facility.
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