Market Reaction - Shoe Zone

Publish Date: 21 May 2024 

Time Period: 26 weeks to 30 March 2024 

- Revenue: £76.5 million (up 1.5% from £75.4 million). This increase is mainly attributed to a significant rise in digital revenue.

  - Store Revenue: £59.4 million (down 2.8% from £61.1 million). This decrease is due to trading out of fewer stores.

  - Digital Revenue: £17.1 million (up 19.6% from £14.3 million). The increase is driven by a strong performance across all online channels, growth from online-exclusive ranges, and range extensions.

- Contribution: £12.2 million (up from £11.1 million).

  - Store Contribution: £8.5 million.

  - Digital Contribution: £3.7 million.

- Profit Before Tax: £2.6 million (up from £1.5 million). The increase is due to better underlying margins and lower container prices, although offset by cost increases in wages, utilities, and depreciation.

- Adjusted Profit Before Tax: £2.5 million (unchanged from £2.5 million). Reflects steady underlying business performance.

- Earnings Per Share: 5.6 pence (up from 3.1 pence). The rise is due to higher profit before tax.

- Net Cash: £4.1 million (down from £12.9 million). This decline is mainly due to dividend payments, increased capital expenditure, and higher stock levels.

- Proposed Interim Dividend: 2.5 pence per share (unchanged from 2.5 pence).

Operational Highlights:

- Number of Stores: 309 (down from 323 at the 2023 FY).

  - New Format Stores: 162 (up from 135).

  - Original Format Stores: 147 (down from 188).

- Store Openings and Closures: 15 stores opened, 29 stores closed, and 15 stores refitted to new format.

- Capital Expenditure: £5.3 million (unchanged from £5.3 million).

- Lease Renewal Savings: £0.2 million, reflecting an average reduction of 28% in lease costs.

- Average Lease Length: 2.3 years (up from 2.1 years).

Financial Review:

- Gross Profit: £14.7 million (up from £13.6 million), with a margin of 19.3% (up from 18.1%). The improvement is due to higher underlying product margins influenced by lower container prices and a stronger sterling to dollar exchange rate.

- Cost of Sales: £61.7 million (slightly down from £61.8 million). Reductions in stock purchases and rates are offset by increases in utilities and depreciation costs.

- Administration Expenses: £8.9 million (down from £9.1 million). The previous year included a £1.3 million foreign exchange loss.

- Distribution Costs: £2.8 million (up from £2.7 million) due to the increase in the National Living Wage.

- Stock Levels: £31.0 million (up from £28.1 million). This increase is due to higher branded stock, increased stock of ladies' sandals received earlier, and higher boot stock for the upcoming Autumn/Winter season.

- Operating Cash Flow: £13.4 million (up from £12.0 million). Despite the 68% decrease in net cash, strong operating cash flow was achieved due to lower dividend payments and increased capital expenditure.

- Pension Scheme Deficit: £2.1 million (up from £2.0 million). The increase is due to a fall in bond yields affecting the scheme's liabilities.

- Earnings Per Share: 5.6 pence (up from 3.1 pence), reflecting higher profit before tax.

The company share price has been on a negative trend of late, and todays results disappointed the market with -4.86% movement (although at some points it was down 9% on the day)

My previous valuation was for 195p, a 10% premium on the current share price. The results highlighted that although their new model stores do not offset fully the closing of old format stores.