- Shoe seller delivers another earnings upgrade
- Pre-tax profits expected to be at least £10.5 million
- Broker sees scope for ‘attractive medium term earnings growth’
Shares in Shoe Zone (SHOE:AIM) strode 6.9% higher to 155p after the value footwear retailer delivered its third earnings upgrade in as many months.
Strong August trading driven by bumper demand for summer and ‘back to school’ products, combined with ongoing margin improvements resulting from good supply chain and cost management, mean adjusted pre-tax profit for the year to 2 October 2022 is now expected to be ‘not less than £10.5 million’.
That is 11% ahead of management’s previous guidance for profits of ‘no less than £9.5 million’.
Shares said to buy the discount shoes, slippers and boots seller on 9 June having noted its strong outperformance of the market in 2022 to date.
At the time, we observed the retailer’s value-based offering would chime with households struggling thanks to the cost-of-living crisis and that thesis is clearly playing out.
ATTRACTIVE VALUE PROPOSITION
As Zeus Capital points out, Shoe Zone’s attractive value proposition means it is ‘well placed to win market share as consumers seek more affordable alternatives against the current backdrop of high energy costs and food price inflation.’
In addition, the discounter’s ‘ongoing strategy of store rationalisation and its growing ecommerce offering means it has the potential to deliver attractive medium term earnings growth, despite the more challenging near-term consumer outlook.’
Zeus also notes that Shoe Zone, which sells cut-price school shoes and work boots, operates in a part of the footwear market which represents a relatively non-discretionary spend to most consumers.
11% PBT UPGRADE
Following the latest positive update from Shoe Zone, the broker upped its full year 2022 sales estimate by £300,000 to £157.7 million and raised its adjusted pre-tax profit forecast by 11% to £10.5 million, though it left this year’s dividend per share estimate unchanged at 6.8p.
The broker also prudently pared back its full year 2023 revenue forecast by 6.6% to £152 million to reflect a more cautious outlook for the UK consumer.
