Footasylum PLC (LON:FOOT) saw almost half of its value wiped away early Tuesday after the athleisure retailer warned its bottom line will be hit by increased investment in its stores this year.
The AIM-listed firm, which joined the junior market back in November, said it will pour more money into its consumer offering ahead of its peak Christmas trading season, while it also plans to invest heavily into store upsizes and the opening of new sites.
Forecasts chopped
“This will have an associated increase in both expected capital expenditure and property costs for the current year and as a result, we now anticipate that, adjusted EBITDA for FY19 is likely to show more modest growth than in FY18,” said chief executive Clare Nesbitt.
Nesbitt – the daughter of Footasylum and JD Sports Fashion PLC (LON:JD.) founder David Makin – also warned that the start to the new year had been impacted by the “widely documented weak consumer sentiment on the high street”.
House broker Liberum chopped its pre-tax profit forecast by 22% to £7.5mln for the year through to February 2019, down from its previous estimate of £9.6mln.
In its first set of results since becoming a listed company, revenue climbed by a third to £194.8mln for the year through to February 24 (2017: £147.0mln).
Excluding some one-off costs, adjusted pre-tax profits climbed 4% to £8.4mln (2017: £8.1mln).
Shares fell 43.3% to 95p in early deals.
Investment ‘sensible’
“Footasylum is investing for growth in areas where there is a more predictable rate of return,” said Liberum analyst Wayne Brown.
“The focus on more store upsizes is sensible as this aligns its strategy with the brands it retails but should also ensure a more predictable payback on capital spend.
“While all this means higher capex, depreciation and rent in the short term with a modestly longer burn to greater sales growth, it is sensible in light of the structural shifts in the current market place.”
Brown adds: “Footasylum remains a high growth business, is investing wisely and the story remains very much intact, though it is clearly disappointing to be cutting numbers by 25%.”
Set up in 2005 by JD Sports founder
Makin and partner John Wardle pocketed around £45mln after they sold out of JD Sports – which still bears their first initials – back in 2005.
Makin used his chunk of the proceeds almost immediately to set up Footasylum and was joined three years later by his former business partner.
Wardle has stepped down from his role now, with the position of executive chairman being filled by former JD boss Barry Brown.
Footasylum focuses on premium ‘on-trend’ footwear and apparel and stocks brands such as Calvin Klein, Nike and Adidas, as well as several lines of own-brand products.