|It may be unfashionable, but its a very well run high margin retailer throwing off lots of cash. If Big Box format and internet sales continue to accelerate then it could start growing again.|
|An interesting and positive review of the results from Paul Scott a few days ago.
Shoe Zone (LON:SHOE)
Share price: 182.5p (unchanged today)
No. shares: 50.0m
Market cap: £91.3m
(at the time of writing, I hold a long position in this share)
Results 52 wks ended 1 Oct 2016 - the figures for this discount shoe retailer were pre-announced in a trading update, which I reported on here, on 25 Oct 2016.
So this looks OK. A bit more detail:
•Gross margin - excellent, at 62.0% (LY 61.5%) - can this be maintained though, as forex cost pressures mount? In narrative, company reassures that GM can "broadly" be maintained.
•Online sales up 11% (should be more). I can't find a figure for total, or what proportion of grand total, so assume it's not particularly high.
•Growth in international sales online - encouraging, but need figures on this to assess important.
•Short leases - this is a key competitive advantage, which I like very much. Average length is only 2.6 years. This means company has flexibility to relocate, and take advantage of "trend of falling rents".
•Business rates - company says it will be a net beneficiary from the recent revaluation - good news.
•Balance sheet - very solid, with plenty of cash. Although note pension deficit has risen significantly and £0.6m annual cost is going to rise.
•Family-controlled, so a takeover bid is very unlikely, unless they want to sell out. If they do, then it would have to be at a decent premium.
•Dividends - very generous - 6.8p final, plus 8.0p special divis are in the pipeline.
•Cash generation - very good, and anything above £11m is paid out to shareholders, a terrific discipline.
•Current trading - in line with expectations. They're up against soft comps though, as last year's H1 was poor.
My opinion - I like it a lot. However, it's a mature business, so where's the growth going to come from? In current market conditions, I doubt there is much upside on this share price - the market isn't interested in mature retailing businesses right now - it wants fast growing ones. That said, the income from divis here is smashing. I've dipped my toe in, with a small purchase this morning. My intention is to research it in more depth, and think about it more, before deciding whether to buy any more. I doubt this will become a significant holding for me, it's more a dabble, and to generate a bit of dividend income.
Based on the bullet points above, I think Shoe Zone should be able to cope with more depressed retail conditions in 2017 far better than many others. That's mainly due to its variable (and reducing) costs on shop leases, and an apparent ability to maintain margins. I like that it's a really entrepreneurial business, run by a family who clearly know what they're doing, and are experienced. That said, I don't see much excitement being likely with this share, and it could even drift down, in current market conditions. I would buy more if it dropped significantly.
EDIT: I forgot to mention, FinnCap has put out a rather downbeat note today, saying it's going to reduce its forecasts. Another broker has put out forecasts which show negligible profit growth over the next 2 years. Therefore I think we should work on the basis that profit is likely to be flat, or maybe down a little in the short to medium term. I think they're perhaps being a little too negative. Sure, SHOE is subject to the same wage cost pressures as everyone else. However, it has mitigated cost increases from the forex issue, so it says, and is also able to manage down its rent+rates costs, unlike most other retailers. So to my mind, this company is more likely to weather any storm in weaker consumer confidence, than most other retailers.
|Pretty solid results I thought. A very well run business and 10% yield will do nicely. Should move up to £2 in my view.|
|The year end results were just as expected and inline with the year end trading update. This years total dividend of 18.1p provides an overall yield of 10% at the current shareprice, which is a truly outstanding return from a debt free, net cash company !
The business delivered revenue of GBP159.8m (2016: GBP166.8m) and continues to generate cash effectively from a sound financial position and a debt free balance sheet. Profit before tax increased by 1.1% to GBP10.3m (2015: GBP10.1m) while earnings per share increased 4.3% to 16.9p (2015: 16.2p).
Following another successful year of cash generation, the business closed with GBP15.0m of cash. As a result, the Board is proposing two dividends to be paid: a final dividend of 6.8p per share (2015: 6.5p), resulting in a total dividend for the year of 10.1p (2015: 9.7p) per share, and a special dividend of 8.0p per share (2015: 6.0p). The total distribution for the year of 18.1p (2015: 15.7p) represents an increase of 15.3% over the previous year.
The aim of the special dividend is to distribute any surplus cash back to shareholders. We continue to believe the business can operate on an opening/closing cash position of GBP11m and any excess above this level will be paid out to shareholders unless there is a change in business requirement. The dividends will be paid to shareholders on the register on 24 February 2017, payable on 15 March 2017 if approved at the Annual General Meeting to be held on 2 March 2017. The shares will be ex-dividend on 23 February 2017.
Project 'Big Box'
We have had a very encouraging start to the launch of our new trial Project 'Big Box'. During August and September we opened two stores, Launceston (Cornwall) and Durham, followed by Kirkstall Bridge (Leeds) post the period end in October. These stores on average are twice the size of a Grade 1 store and benefit from an enhanced branded product range, driving a higher average transaction value in a enhanced shopping environment. The three trial stores are all located out of town and therefore this concept creates significant opportunity for Shoe Zone in this space with all future openings being out of town location or in larger high street units. This new growth opportunity is a key strategic development for the business, broadening the reach of the Shoe Zone brand and enabling us to improve our market share.
Current trading and Outlook
The outlook for consumer spending looks challenging with the current difficult economic conditions likely to continue. Despite this, we are well positioned given our strong value proposition that has proven to be robust in challenging market conditions. We are exposed to fluctuations in the value of sterling but have put significant work into managing the risk through foreign currency hedging and re-sourcing. While we anticipate this pressure may be here for some time we expect to broadly maintain our gross margin percentages.
We have continued to manage the store portfolio having opened six new stores since the year end and refitted four. Early signs are that the changes we have made to store rebranding has been favourably received with customers. There are currently five new stores with provisional opening dates and a further 39 full refits planned for the remainder of the year.
We plan to open a further six Big Box stores in 2017 at various locations across the UK. These stores will be a mix of out of town and high street locations but will all operate with the new contemporary format, offering a good brand mix, extended product range and broad customer appeal. If the trial continues to be a success through 2017 we will look to accelerate the opening programme of these stores into 2018 and beyond.
We expect the business will continue to convert cash effectively but anticipate a small increase in both capital expenditure and contribution to defined benefit pension schemes. We anticipate spending an additional GBP1.0m more in 2017 on store opening, refits and head office improvements. We are currently contributing GBP600k to one of our pension schemes and are in discussions around the ongoing funding with the trustees of our two schemes.
Our multichannel offering has had some exciting developments since the year end and we are now trading on Amazon marketplaces in France, Germany, Spain and Italy. We plan to continue to grow into new international online marketplaces throughout 2017. Following a Google algorithm change in September we have experienced a step up in organic search on shoezone.com that is also very encouraging. Further online growth in 2017 will come from investment in 'Personalisation', implementing new technology to enable us to enhance our conversion rate optimisation, giving our customer a more personal shopping experience.
Shoe Zone has made a solid start to the year and trading is in line with expectations. We are making good progress against our strategic objectives and the board remains positive about the outlook for the Group for the remainder of the year.
In the 52 weeks to 1 October 2016, Group profit before tax ('PBT') increased to GBP10.3m (2015: GBP10.1 m), an increase of 1.1% on last year. PBT margin also increased to 6.4% (2015: 6.1%). Revenues of GBP159.8m (2015: GBP166.8m) declined by 4.2% due to the planned closure of loss making stores and as a result of difficult trading conditions in the first half. Store numbers reduced by a net 25 branches to 510 at the year end (2015: 10 branches closed leaving a total of 535). Multi-channel revenues (excluding store orders) have continued to grow achieving 11.4% during the year (2015: 39.4%), and have developed to 3.9% of total sales (2015: 3.3%).
Product gross margin strengthened to 62.0% (2015: 61.5%) reflecting further increases in direct sourcing and management of write downs. Operating expenses increased to GBP17.4m (2015: GBP17.0m). Administration expenses, which increased by GBP0.7m largely due to the impact of unhedged foreign exchange differences were, offset by continuing efficiencies in distribution costs. The effective rate of corporation tax for the year was 21.8% on PBT (2015: 24.4%). Earnings per share increased 4.3% to 16.9p (2015: 16.2p). The business has a debt free financial structure and generated GBP13.9m cash from operations, a year on year increase of GBP2.3m resulting in a net cash position of GBP15.0m (2015: GBP14.2m) at the year end, underpinning a strong balance sheet. The Group's current bank facilities consist of an on demand overdraft facility of GBP5.0m with HSBC. This facility has not been used within the year.|
|Shoe Zone tipped by a TMF writer this month
A cash-rich budget brand
Footwear retailer Shoe Zone (LSE: SHOE) operates at the budget end of the market. This small cap is a familiar site on UK high streets, but also sells online. The group’s strengths lie in sourcing footwear cheaply from contract manufacturers abroad and keeping costs low at home. This lean business model generates an operating profit margin of 6%, with strong free cash flow and no debt.
Consumer spending is expected to come under pressure next year, but Shoe Zone’s specialist focus on value should help to protect sales. Management also has a big stake in the business — founders Anthony and Charles Smith own 50% of the group’s shares. Shoe Zone currently trades on a forecast P/E of 10, with a prospective dividend yield of 5.8%. Demand for this generous income could push the shares higher in 2017, if trading remains stable.
Final Results for 2016 (y/e 30 September) are due next Wednesday (11 January).|
|Shoe Zone tipped by IC this month on 19/12/2016 as a compelling investment proposition at the current valuation with an attractive dividend as well
Great products, an attractive dividend yield and efficient management of capital make this UK based business a compelling investment proposition at the current valuation.(IHT qualifying). This proven retailer, with an expanding online offering, is a well-managed outfit and worth a look at the current modest rating. With a strong net cash position and dividend yield…
|Always a good time for shoes - wet weather - floods - leaking shoes = New Shoes
Big Sheds, Big Brands = Big Bucks|
|Yeah - someone is bullish with that £450K buy !|
|That is a big trade ; 259k shares at £1.75 on the up.|
|Retail sales rocket on thrills and chills in October, ONS finds
(ShareCast News) - UK retail sales in October rose by the most in 14 years, official figures released on Thursday showed, as cooler weather helped drive winter clothing sales and grocers enjoyed a thrilling Halloween. The volume of retail sales in October rose 7.4% over the same period last year, the Office for National Statistics said, up from the revised 4.2% gain the month before and beating of the 5.3% consensus forecast. Month-on-month, sales in October increased 1.9% on September's, well ahead of the 0.4% expected and up from the 0.1% a month ago.
Gains were made by all store types, except department stores, with the largest contribution to growth coming from textiles, clothing and footwear stores. Excluding car sales, retail sales were up 7.6% on last year and 2.0% on the previous month. ONS senior statistician Kate Davies said the strong figures were boosted by several factors. "Cooler temperatures in October boosted clothing sales as shoppers took their cue to purchase winter clothing, while the supermarkets benefitted from Halloween. This has also coincided with the strongest growth in internet sales seen for five years," she said.
While the retail sales figures provided further evidence that shoppers remain undeterred by the Brexit vote, economist Paul Hollingsworth at Capital Economics said he doubted that high-street spending will maintain this pace. "After all, this week's labour market figures highlighted that wage growth remains weak. Moreover, despite the slight dip in inflation in October, it still looks set to breach the MPC's 2% inflation target in spring next year, and will end the year closer to 3%. Accordingly, the squeeze in real income growth is yet to come. That said, with interest rates remaining low, and the chancellor set to ease the planned fiscal squeeze considerably at next week's Autumn Statement, we don't think that spending growth is on the cusp of a dramatic slowdown."
Howard Archer at IHS Markit said the level of consumer spending will be the key issue in the 4th quarter, with clouds on the horizon but current support from decent fundamentals in the shape of purchasing power and high employment. "Retailers will clearly be hoping that consumers' willingness to spend remains high over the vital Christmas shopping period. The latest Gfk consumer confidence survey indicates that consumer confidence fell back modestly in October after rebounding strongly in September and August from July's sharp losses that occurred in the aftermath of June's vote for Brexit."
|Before any special dividends?|
|The existing yield at todays Offer Price of 169p is 7.4% !|
|The shareprice decline was not based upon any news or correlating market information whatsoever and the RNS just confirms that results are expected to be inline with the expectations contained in their interim results in June. Hopefully this will now head back above 200p.|
|No profit warning as I was fearing, hope to see a rise on the back of this RNS :-
The Board expects pre-tax profit for the period to be broadly in line with expectations and marginally ahead of the prior year. The business continues to have strong cash conversion and closed the year with an approximate net cash balance of £15.0m (2015: £14.2m).
Nick Davis, Chief Executive of Shoe Zone, commented:
"I am pleased with the Group's performance in the second half of the year, during which we have seen little impact from the EU Referendum while having traded well through the key Back to School period. We have now opened three Big Box stores as part of our trial and the early signs are very encouraging. These stores offer customers a different store experience with a wide range of third party brands and the feedback so far has been good. We look forward to updating shareholders on progress at the Final Results in January."|
|Increases in input costs tend to hurt in the short term, but medium to longer term the margin percentages normalise. The increased revenue and normalised margins means higher profits. The converse, with reducing input costs is why stocks (including retail) do poorly when deflation concerns abound.|
|They will nudge prices up as with everyone else in this sector. Odd movement!|
|yes i dare say it can only be negative but let's hope it's largely mitigated.
anyway, good to see the offer strengthen in the last 30 mins and a bit more demand evident from dummy online trades.|
|thanks gleach. i guess those only last for so long, they have to rebuy this year for next year etc. they don't appear to split out the direct CoGs from what i can see. prob cheap either way, but i would guess the £ move is negative for them.|
|I did wonder about that oregano but this from the Final Results allayed particular concerns on that front to a degree -
"During 2015 the Board adopted a cash flow hedging policy relating to committed stock purchases from overseas with the overall objective of protecting the product gross margin. The Group uses derivative financial instruments (usually forward exchange purchase contracts) to hedge the risk of future foreign currency fluctuations relating to the stock import schedules."|
|I imagine everything they sell is imported. If I'm not wrong they weak pound could cause this shoe specialist trouble. Supermarkets can spread the increased costs across their massive product range. Shoe Zone cant.|
|£ declines increasing their cost of goods sold perhaps?|
|A spreadbet is brave with such a wide spread danpollard.
Such a fall just after the FY end is a bit of a concern. Anyone any clue what has prompted this fall or is it just a victim of general retail malaise?
Either way I've been tempted in for a few today.|
|It can then get worse, HSBC believe £ to $ will be at 1.10 by end of the year!|
|Weak pound will be hurting this company. Is the divi sustainable.|