(Sharecast News) - Joules said on Monday that trading has been weaker than expected and that it has advanced talks with a number of strategic investors, including founder Tom Joule, to provide a cash injection for the business.
The clothing retailer said trading overall for the 11 weeks to 30 October has been behind the group's expectations, largely due to the "challenging" economic environment, which has dented consumer confidence and disposable income.
"In addition, whilst dresses, menswear and more formal product categories have performed well, larger core categories such as outerwear, wellies and knitwear have been impacted, in part, by the milder than expected weather," Joules said.
The retailer had already announced in September that it was assessing its financing requirements and considering an equity raise. Since then, it has advanced talks with a number of strategic investors, including Tom Joule, to provide a cornerstone investment in an equity raise.
"Furthermore, the group is continuing to progress alternative options with the assistance of Interpath Advisory, including CVA planning, in conjunction with the equity raise referred to above," it said. "It is the group's intention to commence consultation with key stakeholders, including suppliers, on the turnaround plan including potential alternative options, should they be required."
Joules also said it remains in talks with lenders 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.
Due to its weaker-than-expected trading performance, the company's working capital position is now below expectations, it said. As a result, it is in talks with Tom Joule and its lender about a bridge financing proposal.
At 1125 GMT, the shares were down 25% at 10.24p.
Russ Mould, investment director at AJ Bell, said: "The curse of the wrong type of weather has struck again, with Joules saying that sales of jumpers, coats and wellies have disappointed because the past few months have been relatively mild. This is disastrous for Joules because it was already struggling and needs every possible penny hitting its tills to help put the business back on track.
"Discussions to raise more money are ongoing and founder Tom Joule is seen as a potential saviour on this front. This puts the entrepreneur in a difficult situation - does he hand over yet more cash to keep the ailing business from collapsing, or does he stand aside and hope that his creation finds an alternative way of staying afloat without him risking more money?
"The fact Next pulled out of investment talks in September with the retailer would suggest Joules could unwind as easily as a cat pulling yarns from a woolly jumper. The clock is almost certainly ticking with regards to getting more cash through debt or an equity investment.
"Next might have taken a page out of Mike Ashley's playbook - wait in the wings in case the target goes into administration and then pick up the brand on the cheap. This strategy would mean Next doesn't have to bother with the operating business and its associated problems."