Budget footwear seller Shoe Zone (SHOE:AIM) is on the front foot on Wednesday, the shares bid up 11.4% to 200p on news the Leicester-based retailer is trading ahead of previous market expectations, having made ‘a solid start’ to the new financial year including Christmas.

Against a backdrop of retail sector failures and profit warnings, Shoe Zone certainly stands out as a shopkeeper continuing to deliver upgrades in the most testing of markets.

WINNING VALUE PROPOSITION

Among the retail sector’s rare success stories at present, Shoe Zone sells approximately 20m pairs of shoes per year with an average retail price per pair of just £10. It is able to maintain low retail prices due to the high volumes it orders, direct sourcing from factories and a low product line count.

Today’s results for the year ended 29 September 2018 reveal an impressive 18.4% increase in pre-tax profit to £11.3m, ahead of broker Finncap’s (FCAP:AIM) recently raised expectations, on sales up 1.8% to £160.6m, reflecting growth across all channels. These include digital, where sales surged almost 20% higher to £9.8m, and the exciting roll out of ‘Big Box’ stores.

The expanding band of Big Box outlets carry a wider product range and offer Shoe Zone growth through diversification into out of town retail and a proposition attractive to a more affluent customer base. Shoe Zone currently has 25 Big Box stores and is targeting 45 Big Box stores by December 2019.

RETURNING SURPLUS CASH

Closing the year with £15.7m cash in the coffers, Shoe Zone not only declares a near-doubling of the total dividend to 19.5p, it also plans to return £4m of surplus cash to shareholders via an 8p special dividend on top.

CEO Nick Davis is ‘pleased to report that 2018 has been another successful year for Shoe Zone with the group delivering a record profit before tax since IPO (in 2014) driven from a strong performance throughout the business while operating in a challenging consumer environment. This positive performance is testament to the strength of the core business model and the effective focus on growing the Big Box and digital channels. As a result of the strong performance, the board is pleased to again return excess cash to shareholders by way of special dividend.'

There’s also a positive current trading statement from Shoe Zone, something of a rarity in the current bleak retail environment. While Shoe Zone concedes ‘the outlook for consumer spending remains challenging with the difficult economic conditions likely to continue’, the retailer insists it is ‘well positioned given our strong value retail proposition that has proven to be robust in challenging market conditions.’

‘Shoe Zone has made a solid start to the year and is trading ahead of previous market expectations. We are making good progress against our strategic objectives and the board remains positive about the outlook for the remainder of the year.’

THE FINNCAP VIEW

Finncap has a 230p price target for Shoe Zone. Analyst Peter Smedley writes: ‘We upgraded forecasts on trading strength in October and do so again today (full year 2019 increased by 8% to a conservatively framed £11m) on the back of very strong full year 2018 results, with positive trading momentum continuing so far into full year 2019.

'Alongside better than expected full year 2018 results, management has also delivered a step-change in confidence/clarity around Shoe Zone’s strategic growth ambition.'


Issue Date: 09 Jan 2019