Jan 8, 2020
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Shoe Zone profits fall after bruising year, but turnaround goes on

Jan 8, 2020

Budget footwear retailer Shoe Zone issued its preliminary results on Wednesday and they painted a weak picture for the period ended October 5 2019, but there were also signs of hope for the future as the firm’s store upgrades continued and yielded stronger results.

Shoe Zone

The UK's largest value footwear retailer (it has around 500 stores and employs 3,500 people) said revenue rose only 0.9% to £162m but the product gross margin was maintained at 62.7%. However, the latest period covered 53 weeks compared to 52 weeks a year earlier so the result was weaker than it looked when taken on a directly comparable basis.

It also said statutory underlying profit before tax fell to £9.6m from £11.3m and the company’s cash balance was down to £11.4m from £15.7m following £1.5m higher capex spend and a £4m special dividend paid in the year.

The company, whose stores are mainly in town centres, has been steadily converting a percentage of its store estate to a big box format and had 21 such openings last year, giving it a total of 45 big box stores by the end of December. They contributed revenue of £15.6m, up from £7.1m a year earlier. These stores, which sell the firm’s own brands, as well as labels such as Clarks, Skechers and Hush Puppies, are the big hope for the future and more conversations are planned for this year.

But they’re not the only focus and the company also said it staged a successful trial of four new and slightly-more-premium ‘hybrid’ town centre stores that mix elements of the big box format with its more regular shops. It plans to convert a further 20 in 2020.

And importantly for its stores given the state of UK fashion retail at present, it achieved a 23.6% reduction on rents across 60 town centre lease renewals.

The company is also investing in boosting e-tail and said its digital revenue growth was 9.2% to £10.6m during the year, with that growth weighted to H2. It said it has over a million “engaged users” on the shoezone.com database.

The company sells around 18m pairs of shoes a year at an average price fo £10 but other initiatives in the past year included the relaunch of its more “premium” own-brand Lilley & Skinner, which contributed £535,000 in sales. The brand has a higher-priced offer with women’s shoes at around £30 and boots for around £50. These are sourced direct from its existing manufacturer base and "consistently deliver margins in excess of 70%”. 

But despite such positive developments, it’s clear that the year was a tough one as its CEO exited on the back of weak sales and executive chairman Anthony Smith returned to the CEO’s post.

So what he have to say? Smith admitted that it had been “a difficult year” but hailed the revenue rise and the fact that underlying profit before tax was “marginally ahead of our revised expectations following our revaluation of freehold property”.

He also put his support behind physical retail. “Town centre stores remain an important component of our proposition,” he said “and we don't agree with doomsayers referring to the inevitable ‘death of the high street’.”

But he also had plenty to say about the costs that are crushing many retailers with physical stores: “It's stark that over the past 10 years the rates paid as a proportion of our rent has increased from 26.4% in 2009 to 54.3% in 2019. Despite rationalising our store estate, the value of rates paid has increased by £700k despite having 38% fewer stores and 30% lower sales". 

The issue of business rates has been one that has occupied many retailers with physical stores and he’s not the first to rail against the disproportionately large burden that store-based retailers shoulder compared to the rest of the business community and especially compared to pureplay e-tailers.

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