Shoe Zone shop
Shoe Zone lowers full year profit forecast / Image source: Adobe
  • Full year forecast cut again
  • Poor weather affected trading
  • Shipping costs have surged

It is perhaps not surprising that footwear retailer Shoe Zone (SHOE:AIM) lowered its full-year profit forecast amid increasing shipping disruption in the Suez Canal, which has led to ‘significantly’ higher container prices over the last six months.

Investors were already braced for such news after the company referenced the issue in March and warned of the impact on earnings at the half-year results in May.

It is the scale of the latest downgrade which seems to have spooked investors, with the shares falling 17% to 126.9p taking year-to-date losses to 47%.

UNSEASONAL WEATHER ADDS TO WOES

In a brief trading statement, Shoe Zone said the company had experienced ‘weaker than expected Spring/Summer sales from April to June due to unseasonal weather conditions.’

Consequently, the retailer now expects pre-tax profit for the year to 2 October 2024 to be not less than £10 million. At the half year results, management lowered its full-year profit forecast to £13.8 million from £15.2 million.

Since the end of April, container shipping costs have almost doubled to $5,318 according to the Drewry World Container index, reflecting increasing tensions in the Middle East and disruptions to traffic through the Suez Canal.

Other retailers which rely on similar trade routes will no doubt be facing the same headwinds as they look to build inventories for the Autumn and Christmas seasons.

EXPERT VIEW

AJ Bell investment director Russ Mould commented: ‘Perhaps the most significant takeaway from the downbeat guidance was the flagged increase in shipping costs, with upward pressure on container prices thanks to the reroute away from the Red Sea and the Suez Canal.

‘Shoe Zone’s warning also dragged down LED lighting specialist Luceco, another big importer of product from overseas.

‘It is a reminder that inflationary pressures remain in the global economic system which may have wider implications than tripping up Shoe Zone. It also means investors will be closely monitoring companies with global supply chains to see if they are experiencing a similar impact.’

Disclaimer: Financial services company AJ Bell referenced in the article owns Shares magazine. The author of the article (Martin Gamble) and the editor (Ian Conway) own shares in AJ Bell.

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Issue Date: 02 Jul 2024