UPDATE 2-Stock shortage during Christmas to hit fashion retailer Joules profit

* Sees 2020 profit below market view of 16.7 mln pounds

* Says stock shortage issue resolved

* Takes strategic decisions on supply chain operations

* Expects cost headwinds from U.S.-China tariffs in H2 (Adds CEO quote, details on update, analyst comment)

Jan 10 (Reuters) - Fashion retailer Joules Group Plc warned on Friday that its 2020 profit would be significantly below market expectations as online retail sales suffered due to a shortage of merchandise during the crucial Christmas period.

Joules, which designs and sells clothes, accessories and furnishings, said costs in the fiscal second-half could rise due to U.S.-China tariffs, which it expected to continue into next year.

The company, known for its hand-drawn or hand-painted prints, said it was not able to convert growing traffic into sales because of “an internally generated stock availability issue”.

“We have identified the root cause of this one-off issue and have taken steps to prevent its reoccurrence,” Chief Executive Officer Nick Jones said, as the retailer announced what it said were strategic decisions regarding its supply chain operations.

The moves included a transition of its U.S. distribution centre to a new partner and establishing an outsourcing partnership to help its UK logistics operation.

“The issue here was one of merchandising and was a self-inflicted problem with demand being strong from customers, traffic was robust leaving us to assume there is no issue with the brand nor was the range out of favour,” analysts at Liberum said.

Industry data on Thursday showed British shoppers cut back at the end of 2019, rounding off the worst year since the mid-1990s for retail sales amid uncertainty over Brexit, last month’s election and slowing wage growth.

Retail sales over the seven-week period to Jan. 5 were significantly below expectations and fell by 4.5% compared with the prior year, Joules said.

Traffic to its website grew by 8% for the Christmas period, it said.

The underlying pretax profit was expected to be 16.7 million pounds, according to a company-compiled consensus of estimates. It reported profit of 15.5 million pounds ($20.25 million) for the year ended May 2019. ($1 = 0.7653 pounds) (Reporting by Yadarisa Shabong in Bengaluru; Editing by Arun Koyyur)