- Firm cites ‘very challenging’ trading
- Unviable stores set to close
- Discounter to pass final dividend
Struggling footwear retailer Shoe Zone (SHOE:AIM) has halved its current-year profit guidance and plans to pass the final dividend for the year ended 28 September 2024 after experiencing ‘very challenging trading conditions’ since the Budget.
Combined with increased costs also stemming from the Budget, which has resulted in plans to close a number of stores that are no longer considered viable, Shoe Zone now expects adjusted pre-tax profit for the year ending 27 September 2025 to be ‘not less than £5 million’.
That’s a whopping 50% downgrade versus previous expectations of £10 million, and the negative news sent shares in the Leicester-based retailer tumbling 40% to a two-year low of 80p.
WEAK CONFIDENCE & WEATHER WOES
Shoe Zone explained that for the first two months of the new financial year and the first half of December, sales and profits have been impacted by ‘very challenging trading conditions, principally a weakening of consumer confidence and unseasonal weather’.
The value-for-money shoes, trainers, boots and slippers seller bemoaned a further weakening of consumer confidence since the October Budget, which will also see it absorb ‘significant additional costs’ due to the increases in National Insurance and the National Living Wage.
‘These additional costs have resulted in the planned closure of a number of stores that have now become unviable,’ said Charles Smith-chaired Shoe Zone. ‘The combination of the above will have a significant impact on our full year figures.’
EXPERT VIEWS
While the shares understandably came under selling pressure following Shoe Zone’s latest earnings alert, Zeus Capital stressed the retailer operates in a defensive sub-sector of the consumer market.
The broker said the core Shoe Zone product offer represents a staple-like, rather than a discretionary, purchase, and added: ‘The ongoing store transformation is delivering bigger, more profitable stores, with management executing a highly disciplined approach to store economics - as evidenced by the decision to close several stores no longer deemed viable during the current year.’
Zeus Capital continued: ‘Despite a much more cautious outlook for full year 2025, Shoe Zone does remain profitable and cash generative, with zero financial debt on its balance sheet. The decision to withdraw the full year 2024 final dividend is highly prudent in our view, with Shoe Zone having a track record of restoring shareholder distributions as soon as trading performance allows.’
Russ Mould, investment director at AJ Bell, said: ‘Poor autumn weather won’t have helped but Shoe Zone does not sell a discretionary product - it sells affordable footwear, for which demand should be relatively resilient.
‘Perhaps Shoe Zone’s offering isn’t resonating with shoppers as much as it used to. At the very least, you would hope management is looking at what’s gone wrong rather than attributing everything to external factors.’
Mould continued: ‘The company cannot be accused of putting its feet up – it is shuttering stores and suspending the dividend in response to the downturn in trading. This isn’t the first shock the company has delivered in 2024, with a cybersecurity incident and higher shipping costs among the bad news shareholders have had to absorb.
‘The company’s reliance on its Chinese supply chain is a potential source of volatility and management, including executive chair Charles Smith and finance director Terry Boot, will be under pressure to turn things around if they are not to get the boot themselves.’
DISCLAIMER: Financial services company AJ Bell referenced in this article owns Shares magazine. The author of this article (James Crux) and the editor (Ian Conway) own shares in AJ Bell.
