Footasylum PLC (LON:FOOT) shares tumbled more than 50% as it cut its guidance for 2019 earnings and warned that revenue growth would miss market expectations amid a tough retail market.
The footwear retailer said it expects adjusted earnings (EBTIDA) for the fiscal year 2019 to be “significantly lower” than previous guidance at less than half of the £12.5mln reported for 2018 due to revenues falling short of analysts’ forecasts and weaker margins from a higher amount of clearance activity in stores.
READ: Foot asylum stumbles as higher investment and gloomy trading conditions to hit this year’s results
High street retailers have been hit by weaker consumer confidence and a growing shift towards online shopping. Footasylum said its sales performance in May and June was “positive” despite difficult market conditions but July and August were “more challenging”.
"These are undoubtedly challenging times in the retail industry and, in common with many other businesses, Footasylum's trading has continued to be impacted by weak consumer sentiment,” said executive chairman Barry Bown.
“On top of that, increased clearance in stores has led to a reduction in gross margin, and we have also had some unforeseen delays in our new store openings and upsizes. However, we have continued our programme of investment, both in upsizing our stores and in our digital capabilities, and are working hard on a number of initiatives to maximise the Company's performance during the upcoming peak trading period.”
Half-year loss expected
For the six months to August 25, the company expects to report a “small” adjusted EBITDA loss due to lower gross margin and higher investment costs. It will also post exceptional income of more than £2mln from the early termination of the lease on one of its Birmingham stores.
Nevertheless, revenues for the half-year are expected to grow 18.5% to £98.6mln. Sales at stores grew 12.4% to £66.3mln while online sales jumped 28.5% to £30.2mln and wholesale trebled to £2.1mln.
“Despite the challenging outlook, we are encouraged by the continuing progress that we are making in improving our online performance, rolling out our store opening programme, and further enhancing our supplier relationships, and therefore remain confident in the Company's long-term prospects,” Bown said.
Shares plunged 50% to 42p in afternoon trading.
Footasylum has shot itself in the foot, says analyst
Footasylum also issued a profits warning in June, saying its bottom line would be hit by increased investment in its stores this year.
AJ Bell investment director Russ Mould said: “Management’s argument that its core, fashion-conscious 16-to-24-year-old demographic would continue to spend on trainers and t-shirts whatever the economic backdrop has been heavily undermined.
”The business has also not helped itself, pointing to unforeseen delays in new store openings and upsizing of existing outlets.
“Ultimately it is questionable whether investors will still share management’s continuing confidence in the ‘long-term prospects’ of the group.”