- Shoe seller saw ‘particularly strong’ trading in May and early June
- Margins benefiting from falling shipping costs
- Investors who stuck with stock following May wobble rewarded
Shoe Zone’s (SHOE:AIM) shares strode 11% higher to 233p on Friday after the value footwear retailer hiked full year profit guidance following a strong start to the summer selling season and with lower container rates boosting margins.
Guided by CEO Anthony Smith and suitably-named finance director Terry Boot, Leicester-based Shoe Zone now expects adjusted pre-tax profit for the year ending 2 October 2023 will be ‘not less than £10.5 million’.
That represents a 24% upgrade on the £8.5 million Zeus Capital was forecasting before today, while the surge in the share price has rewarded investors who stuck with Shoe Zone following a pullback on the day of the interim results (16 May).
BUMPER SALES, MARGIN BOOST
In a brief update, the cut-price shoes, slippers, boots and trainers purveyor attributed the upgrade on trading since the interims that has ‘exceeded expectations due to particularly strong recent trading through May and early June. This is a combination of strong early demand for summer products and lower container rates contributing to improved margins.’
Shares flagged the potential for earnings upgrades from Shoe Zone precisely a year ago.
We argued the cheap shoes seller’s value offering would appeal to hard-pressed shoppers in a cost-of-living crisis, an investment thesis that is playing out.
CHEAPER TRANSPORT COSTS TO COME
For the half to 1 April 2023, Shoe Zone generated adjusted pre-tax profits of £2.5 million, slightly ahead of management expectations but down from £3.1 million a year earlier due to wage increases and margin pressure from higher container prices and a weak sterling to dollar exchange rate.
At the time, Shoe Zone stressed that container prices had since dropped to below pre-pandemic levels, the benefit of which would ‘start to flow through in the second half of this year’.
First half revenue rose 7.9% to £75.4 million, reflecting the appeal of the retailer’s competitively priced product range and the success of its pivot to larger hybrid and big box store formats.
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