Shoe Zone - a value proposition suited to the challenging consumer environment?

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Shoe Zone (SHOE) has announced results for its year ended 29^th September 2018 and that it is “positive about the outlook for the remainder of the year”, currently “trading ahead of previous market expectations”. The value footwear retailer has announced a pre-tax profit of £11.3 million on revenue of £160.6 million, generating earnings per share of just over 19p, up from 15.8p in the prior year...

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After particularly £5.2 million of dividends paid, cash (net) was increased by £3.9 million to £15.7 million. Total current assets of £51.1 million (including £27.8 million of inventories, though down from £28 million) compared to £34.5 million of total liabilities (prior year: £45.9 million v. £36.4 million). An ordinary dividend per share of 8p is recommended – taking it for the year to 11.5p (prior year: 10.2p). Further, it is stated “the board continues to believe the business can operate on an opening/closing cash position of £11m and any excess above this level will be paid out to shareholders unless there is a change in business requirement”. As such, a special dividend of 8p per share is also announced – these payable on 20^th March, with an ex-dividend date of 28^th February.

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The revenue number represents a 1.8% increase despite 16 stores opened and 20 closed during the period – though the ‘Big Box’ portfolio was expanded by 10 stores to a total of 19 by the period-end (25 at calendar 2018-end, with a target of 20 such stores opening during the current calendar year). Additionally, it is noted overall “rent on renewals fell on average by 23.1%” and “capital outlay was partially offset by £1.5m in rent free during the first year of opening”. Thus there looks benefit for the company from “consumer spending remains challenging” – with also its strong value retail proposition looking suited to such conditions and it maintaining strong lease flexibility; “outstanding average lease length of 2.1 years”.

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The shares have responded currently more than 10% higher to circa 200p, capitalising the company at around £100 million. But this means a current dividend yield of approaching 5.8% on just the ordinary (approaching 9.8% including the special) for a company with a proposition which looks well suited to a current challenging consumer environment. Also still on a relatively modest earnings multiple and with a strong balance sheet, at around these levels still an income buy.

This article first appeared on the N50 website which Tom Winnifrith runs with Steve Moore & Lucian Miers. To access the website ahead of the next share tip from Tom & Steve and a new shorting piece from Lucian click HERE

Filed under: Shoe Zone, Telit, boohoo, Flybe, Bulletin Board Moron of the week, N50 website

2019-01-15 12:05:48

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