Christmas was not a time of celebration for fashion brand Joules (LON: JOUL) and there was a sharp reduction in the 2019-20 profit forecast.

There was a manual stock allocation error that meant that Joules did not have the required stock available. That was enough to knock this year’s profit by £3.5m.

This came as a shock because the trading statement before Christmas was positive. However, spreadsheet errors meant that there was too much stock in the stores and not enough allocated for the website.

Website traffic was 8% ahead but customers could not buy what they wanted. That meant that online revenues fell around Christmas.

Controls have been tightened and hopefully the problems will not be repeated. The buying for the new season is being reviewed.

Management believes that there is no continued problem going into 2020 because demand is there. However, tariffs due to the US/China trade war are also have a negative effect on profitability and it could have a greater effect next year.

Warehouse

On top of the stock problem, the profit forecast is being reduced because of dual running costs as a new US warehouse starts to get up and running.

The lease on the existing UK warehouse is coming up for renewal and Joules is signing up for five more years. The facility will be expanded, and its management outsourced.

There will be additional costs of £1.9m this year and a further £700,000 next year. Further out, annualised savings of £1m are anticipated. There will be plenty of spare capacity.

Forecast

Peel Hunt has cut its pre-tax profit forecast by £6.5m to £10.5m for the year to May 2020, down from £15.5m the previous year. Next year’s forecast has been reduced to £15.5m.

On Friday, the share price slumped by more than one-fifth to 178p – not far above the 160p at which Joules joined AIM in May 2016. The shares, which had been above 300p, are trading on 13 times prospective 2020-21 earnings.

That seems attractive considering the good cash generation and strength of the brand.