Disappointing first half results and a downbeat outlook leave Shoe Zone (SHOE:AIM) with much to do to meet full year forecasts. Analysts are downgrading estimates for the cut-price shoes, boots and handbags seller for this year and next. Diminishing prospects for a special dividend this year also weigh on sentiment towards the small cap income favourite.

Interim results from the cash-generative company show sales down 2.3% to £72.9m, mostly reflecting store closures in the six months to 1 April. Shoe Zone actively manages its 500-strong retail estate to drive profitable sales. Statutory profit before tax slumped from £1.9m to £300,000 as sterling’s slide against the dollar impacted margins.

This leaves the task of meeting the market’s estimates for the full year looking arduous, even with the traditionally stronger second half still to come.

Shares in the company have slumped more than 5% to 177p.


Roger Tejwani, analyst at broker FinnCap, downgrades his forecasts for this year to 30 September 2017 for the second time this year. He is now looking for a decline in pre-tax profits and earnings per share to £10m (2016: £10.3m) and 15.9p (2016: 16.9p) respectively. The analyst has also reduced his price target from 190p to 170p.

‘While the balance sheet remained ungeared, net cash declined £3.5m ( down 43%) year-on-year,’ Tejwani says.

‘We estimate that circa £2m of the decline represents stockpiling ahead of the Big Box launch (see below), which should monetise during the second half, although our year-end net cash forecast is revised down from £14m to £11.5m, capping special dividend prospects to circa 1p versus 8p for full year 2016.’


While the latest round of downgrades is a setback, there are numerous positive points in today’s update. Shoe Zone continues to reduce its rent bill haggle down. Meanwhile, footwear orders placed directly with low cost overseas factories increased to 83.4%, up from 72.2% in the previous full year, helping Shoe Zone to maintain high gross margins.

Three Big Box format stores, a more modern format enabling Shoe Zone to trade in previously-inaccessible towns, were launched in the period too. Shoe Zone says the Big Box trial has performed well and as such, ‘we will accelerate roll out of the concept during the second half of 2017. We aim to have 10 Big Box stores by the end of 2017 and will continue with the planned growth in subsequent years.’

Online sales are growing like topsy, up 30% year-on-year with products sold into Europe through Amazon Marketplace and more recently into the US. Moreover, non-footwear sales - handbags, lunch boxes, purses and school bags - rose by 24%, albeit off a low base.

Shoe Zone - JUNE 2017Shoe Zone’s outlook statement is cautious however: ‘The retail market remains uncertain given the political environment in the UK and across Europe in the coming months. Trading continues to be broadly in line with expectations, with the cost base benefitting from the new rates regime, albeit this may be partially offset by the potential impact of increases in shipping costs.'

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Issue Date: 07 Jun 2017