Branded footwear retailer Footasylum (FOOT:AIM) has warned that slower earnings growth could be in store this year to February 2019. Weak high street conditions means the company will need to step-up marketing and store expansion spending in order to keep the tills ringing.
Accompanying maiden AIM results following November’s successful IPO, the disappointing news sees shares in the trendy trainers-to-apparel purveyor collapse on Tuesday, falling 46.3% to 90p.
HARSH TIMES ON THE HIGH STREET
You can read more about the Footasylum market share growth story here, but all eyes this morning are on an outlook statement that at best can be described as cautious.
‘While our core target market of the 16 to 24-year-old consumer has proved to be comparatively resilient in a downturn, our trading since the beginning of the new financial year has undoubtedly been impacted by the widely documented weak consumer sentiment on the high street,’ the company says.
Footasylum is sensibly tackling the problems head-on and the company remains confident that ‘continued investment in digital and in our stores will allow the company to deliver strong revenue growth for the full year in line with market expectations.’
INVESTING FOR THE FUTURE
In order to deliver this growth amid cut-throat industry conditions, Footasylum will increase investment in its consumer offering ahead of its peak second half trading period while ‘delivering additional store upsizes alongside new store openings.'
Upsizing stores in existing locations not only supports improved showcasing of third party brands ranging from Nike and adidas to Under Armour and own brands such as Kings Will Dream, it also gives Footasylum the increased selling space to grow.
All of this means capital expenditure (cap ex) and property costs for the current year are going up and Footasylum ‘now anticipates that, adjusted earnings before interest, taxation, depreciation and amortisation (EBITDA) for full year 2019 is likely to show more modest growth than in full year 2018.’
TAKING POSITIVE STEPS
Footasylum’s profit warning overshadows otherwise robust results for the year ended 24 February 2018. Revenue is up 33% to £194.8m, ahead of Liberum Capital’s £183.3m forecast and reflecting growth across all channels (stores, digital, wholesale) and product categories.
Adjusted profit before tax (PBT) grew by 4% to £8.4m, slightly behind Liberum’s £8.5m expectation, while statutory profit before tax fell 77% to £1.9m after exceptional items (largely IPO costs). EBITDA margin was also lower, down from 7.6% to 6.4%, due to pressure on gross margins and pegged back by higher store, rent and wage costs.
The broker comments: ‘Footasylum is investing for growth in areas where there is a more predictable rate of return. The focus on more store upsizes is sensible as this aligns its strategy with the brands it retails but should also ensure a more predictable payback on capital spend. Online and wholesale are on track to hit 50% of sales mix in the medium term. While all this means higher capex, depreciation and rent in the short term with a modestly longer burn to greater sales growth, it is sensible in light of the structural shifts in the current market place.'
For the year to next February, Liberum slashes its adjusted PBT estimate by 22.5% to £7.5m, while its 2020 PBT forecast is reduced by 24.8% to £9.1m.
