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Shoe Zone rallies as full-year profits set to come out unscathed from difficult year for UK retailers

Retailers such as Shoe Zone have had to deal with weaker UK consumer spending, reduced high street footfall and foreign exchange headwinds
shoe zone store
Shoe Zone is opening more ‘big box’ out-of-town stores, where it seems to be finding success

Shoe Zone PLC (LON:SHOE) shares were in demand on Tuesday after the value footwear retailer revealed that full-year profits will be in line with expectations despite being battered by various headwinds over the past 12 months.

Not only has the AIM-quoted firm had to deal with a weak UK consumer environment recently, but the fall in the value of the pound post-Brexit has also weighed heavily.

Those issues, coupled with the closures of loss-making stores, mean revenues for the 12 months ended 30 September are expected to fall to £158mln (2016: £159.8mln).

However Shoe Zone said in its trading update that it would still deliver a full-year profit before tax which is “broadly in line with expectations”, helped by the continued roll-out of its “big box” out-of-town store format and its growing online presence.

Cash generation was also strong in the period, with the company closing the year with a net cash balance of just shy of £12mln.

10 new ‘Big Box’ stores planned for 17/18 year

"The group has performed well through the year and I am particularly pleased with the six Big Box stores that we have opened,” said chief executive Nick Davis.

“These have performed in line with initial expectations and the feedback from customers has been extremely positive.

“There are a further 10 planned Big Box openings in the new financial year and we look forward to updating shareholders on progress at our Final Results in January."

City broker: ‘Back in the value zone’

City broker Numis thinks Shoe Zone shares are back in the ‘value zone’ and moved it to a ‘buy’ recommendation with a price target of 190p.

“Shoe Zone has delivered a steady trading performance in FY17 against a decidedly mixed backdrop while developing its medium-term growth agenda in terms of Big Box and online,” wrote analyst Matthew Taylor this morning.

“We shade our PBT forecasts to reflect non-operating items, but the shares have been weak performers and in our view look very good value again.”

He adds: “Trading execution remains solid in our view, with measured product development, pro-active property management (21 new stores, 35 closures during FY17), selective store refits, buying improvements (direct sourcing), and strong control of costs and cash.

“In terms of the growth initiatives, the group opened six Big Box stores. These have performed in line with initial expectations and the customer feedback has been very positive.”

Shares were up 3.3% to 160p on Tuesday morning.

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Shoe Zone Timeline

June 08 2016

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