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Shoe Zone profits slip as company blasts “government imposed increases” in operation costs

The footwear retailer said the value of the business rates paid on its stores had risen by £700,000 in a decade despite 38% fewer stores and 30% lower sales

Shoe Zone Plc - Shoe Zone profits slip as company blasts “government imposed increases” in operation costs

Shoe Zone Plc (LON:SHOE) shares stumbled on Wednesday as the footwear retailer suffered a profit decline that was attributed to “government imposed increases” in its operating costs.

For the year ended 5 October, the AIM-listed firm reported an underlying pre-tax profit of £9.8mln, down from £11.4mln in the prior year, while revenues edged up 0.9% to £1.62bn. The company’s final dividend for the year was maintained at 8p per share, while the total divi for the year was also steady at 11.5p.

READ: Shoe Zone shares rebound after "difficult year" on the high street

The profit slide was blamed on rising operation costs, particularly business rates on the company’s stores, although the year-end figures were marginally ahead of the firm’s revised expectations following a profit warning in August.

Shoe Zone highlighted that over the last decade the business rates it paid as a proportion of rent had increased from 26.4% in 2009 to 54.3% in 2019 and that despite having 38% fewer stores and 30% lower sales the value of the rates paid had risen by £700,000.

“For the retail sector to continue to play its important role in the UK economy, and town centres to serve their communities, it is vital that government recognises the impact of the increasing financial burden placed on businesses on the High Street by successive governments and their policies”, said chief executive Anthony Smith.

The firm’s revenue performance for the period had been supported by an expansion of Shoe Zone’s ‘Big Box’ stores, located outside of town centres in areas such as retail parks.

The company opened 21 new Big Box stores over the year, expanding the total number to 45, as revenues contributed by the store type more than doubled to £15.6mln from £7.1mln in 2018.

Looking forward, Shoe Zone said it had made a “solid start” to its current year and was trading in line with expectations, adding that it is planning more Big Box store openings to take the total to 65 by December 2020.

The company is also planning to convert 20 of its traditional stores to a “more premium” town centre hybrid model by October 2020.

“Notwithstanding the broader sector challenges… The core business model remains robust”, Smith said.

Results show “reinvigorated focus”, says house broker

In a note on Wednesday, analysts at Shoe Zone’s house broker finnCap, which peg the firm with a target price of 220p, said the “positive profit surprise” was a sign that the company’s refreshed strategy was “already delivering benefits”.

“[The] results represent a mild, but important for rebuilding investor confidence”, finnCap said, adding that the 11.5p dividend for the year was “significantly ahead” of their expectations of 9.2p which reflected the company’s “strong cashflow generation credentials, management’s confidence in the future, and demonstration of its recognition of the importance of the dividend”.

However, investors seemed to be more considered by the fall in profits as the shares dropped 2.5% to 158p in early deals.

Quick facts: Shoe Zone PLC

Price: 60.5 GBX

AIM:SHOE
Market: AIM
Market Cap: £30.25 m
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