Footasylum PLC (LON:FOOT) shares tanked in early trading Tuesday after it said its gross margins for 2019 were now expected to be “lower than previously anticipated” as promotional activity and discounting across the retail sector piled pressure on the footwear retailer.
In an update for the 18 weeks ended 29 December, the firm reported that total revenues were up 14% year-on-year (YOY) at £102.3mln, while its store and online segments grew by 5% to £63.7mln and 28% to £36mln respectively. The group’s wholesale arm meanwhile doubled revenues to £2.6mln.
READ: Footasylum on the back foot as it swings to first-half loss amid tough retail market
Despite the revenue growth over the Christmas period, the company said in its outlook that “challenging trading conditions” had continued throughout the Christmas trading period, with promotional activity and discounting across the retail sector being “higher than anticipated”.
As a result, the company said its own promotional and clearance activity had been higher than predicted and in spite of the revenue growth, its gross margin had been “lower than previously expected for the period”.
The firm added that as a result of the trading conditions it expected its gross margin for the 2019 fiscal year to be “lower than current consensus expectations” while full-year revenues were forecast to be in line with consensus.
The company also said that it was implementing a cost reduction plan across the business to reflect the lower margin performance which may result in some exceptional costs for the year, with full-year underlying earnings (EBITDA) expected to be “towards the lower end of the current range of analyst forecasts”.
Barry Bown, Executive Chairman of Footasylum, said that the short-term outlook for the firm was “undeniably challenging” and that the group would continue to focus on “cash, working capital and inventory management, as well as reducing costs across our operations”.
The news will bring little respite for investors, who were burned back in October when the shoe firm swung to a first-half loss as weaker margins and higher investment costs ate into the bottom line.
The firm has blamed several factors for its weak performance including the difficult conditions facing high street retailers as well as delays to a number of store openings and upsizes ahead of the peak Christmas trading period.
Broker hopes worst has passed
In a note to clients, analysts at City broker Liberum were somewhat upbeat despite the cut to forecasts, saying they hoped the firm had “passed the nadir of bad news”.
“The excess inventory that has negatively impacted margins in the current financial year has now been cleared leaving a much cleaner position as we enter into FY19/20E”.
The broker added that there had been “significant investment to support growth over the last 18 months” and that “any indications that a recovery in margins is possible in the upcoming year should be seen positively”.
Shares were down 13.8% at 28p.
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