- Pre-tax profit guidance upped by 30%
- Retail margins are improving
- Group looks to be a cost-of-living crisis winner
Shares in Shoe Zone (SHOE:AIM) stepped 12% ahead to a one-year high of 173p after the value footwear retailer upgraded full-year profit guidance on the back of positive trading twinned with ‘strong’ margin improvements and cost savings.
The upward guidance revision is pleasing as Shares recently added Shoe Zone to our list of Great Ideas selections on the basis the purveyor of cheap footwear for all the family is well placed to deliver a step-up in profit as cash-strapped consumers trade down in the months ahead.
30% PROFIT UPGRADE
In a short but sweet update, the cut-price shoes, slippers, boots and trainers purveyor said it now expects to deliver adjusted profit before tax for the year to 2 October 2022 of ‘not less than £8.5 million’.
That is 30% ahead of the £6.5 million Zeus Capital had previously forecast, with the upgrade also reflecting the benefit of selected price increases on certain product lines.
Shoe Zone insisted it has been ‘trading well’ in the third quarter and also pinned the upgrade on margin improvements and cost savings driven by rent reductions and ‘good supply chain management’, which are expected to continue into the fourth quarter.
BUCKING THE RETAIL TREND
Most retailers have sold off heavily in 2022 as investors discount the impact of the cost of living crisis and rampant inflation on earnings, yet Shoe Zone has bucked the trend with its shares up more than 50% year-to-date.
Guided by chief executive Anthony Smith and finance director Terry Boot, investors evidently believe an unwavering focus on value should enable Shoe Zone to gain market share as hard-pressed families opt for summer staycations over expensive forays abroad and the chain benefits from a strong back to school season.
Shoe Zone is able to achieve low prices due to the high volumes it orders direct from factories, and sells a wide range of well-known brands including Hush Puppies, Skechers, Kickers, Lilley & Skinner and Heavenly Feet.
The small-cap retailer is emerging from the pandemic in decent shape, having returned to profitability and become debt free again in the last financial year.
THE ZEUS CAPITAL VIEW
‘This represents an incredibly robust performance against a backdrop of rising input price inflation, and reflects Shoe Zone’s active management of its cost base and agile approach to its property portfolio,’ commented Zeus Capital.
The broker believes Shoe Zone’s model is ‘highly defensive, operating in a part of the footwear market which we think represents a relatively non-discretionary spend to most consumers (school shoes, work boots, etc) and underpinned by a degree of structural, recurring demand (feet grow, shoe soles wear down).’
