Weak consumer sentiment and subdued high street footfall continue to bite at Footasylum (FOOT:AIM). Shares in the branded footwear retailer slump 48% to 44p on a second damaging profit warning within four months.
Not only is a small adjusted EBITDA (earnings before interest, taxation, depreciation and amortisation) loss expected for the half year ended 25 August, Footasylum also warns full year sales growth will fall short of already-downgraded expectations.
Adjusted EBITDA will be ‘significantly lower than previous guidance, at less than half of the full year 2018 adjusted EBITDA of £12.5m’.
WARNINGS COME IN THREES
Given the old, oft-proven adage that profit warnings come in threes, investors are unsurprisingly heading for the exits.
Two main factors held back the first half performance. Firstly, Footasylum’s greater discounting activity coincided with increased competition and the well-publicised challenges across the UK high street hitting footfall. Secondly, Footasylum experienced warehouse and distribution disruption.
While online and wholesale revenue growth remains strong, given disappointing store sales in July and August, increased discounting and delays to new store openings and store upsizes, Footasylum now expects full year sales and earnings to fall well short of earlier expectations.
Executive chairman Barry Bown is at least trying to remain upbeat, insisting: ‘Despite the challenging outlook, we are encouraged by the continuing progress that we are making in improving our online performance, rolling out our store opening programme, and further enhancing our supplier relationships, and therefore remain confident in the company’s long-term prospects.’
THE EXPERTS’ VIEW
Liberum Capital is keeping its target price and recommendation under review, the brokerage conceding that downgrading for the second time this year is ‘highly disappointing’.
‘Delays to new store openings and upsizes mean these are unlikely to contribute much ahead of Christmas. When combined with a tough backdrop leading to higher promotional activity, higher costs and the knock-on impact from a tough half one, results in a 64.4% cut to our full year 2019 estimated EBITDA,’ laments Liberum.
‘After a damaging profit warning back in June, the company is now warning 2019 earnings will be significantly down on previous guidance at less than half the £12.5m it posted for the year to February 2018.
‘Management’s argument that its core, fashion-conscious 16-to-24-year-old demographic would continue to spend on trainers and t-shirts whatever the economic backdrop has been heavily undermined.
‘The business has also not helped itself, pointing to unforeseen delays in new store openings and upsizing of existing outlets.
‘Ultimately it is questionable whether investors will still share management’s continuing confidence in the “long-term prospects” of the group.'
