Shoe Zone plc (lon:shoe)
Shoe Zone – Flying Under The Radar?


ItemCurrent PeriodPrevious Period
Period6 Months6 Months
Adjusted Earnings
Adjusted EBITDA
Statutory Profit£1m£1m
Adjusted Profit
Total Debt
Net Debt
Title: Shoe Zone – Flying Under The Radar?
Company: SHOE - Shoe Zone plc
Share Price Then: 134p
Author: Ian Smith
Date: Sat 31 Aug 2019
Comments: Shoe Zone a specialist low price shoe retailer have never caught my attention before, even though there is one in my home town I didn’t realise that it was a PLC.

They are listed on the AIM but are not in the FTSE AIM 100 so as a matter of routine I don’t track them as I am cautious of companies of this size, current market cap is £66m.

The group operates small high street shops that sell the core products which are mostly directly sourced from the manufacturer, Big Box stores which are larger and offer branded products in large shopping centres and Hybrid stores which offer a bit of both in the high street as well as a digital platform.

They sell approximately 18 million pairs of shoes per year at an average retail price around £10 and an average sale value of around £13 as a result two pairs for £20 type of offers.

Despite the low price the gross margins is 62%
The first thing that comes up when looking at the number is that sales seem to be a little unevenly split, in both 2018 and 2019 H1 (Oct-Mar) sales result in a profit of about £1m but the full year for 2018 saw profits rise to £10m.

Surprisingly for a retailer their rents seem to be under control! At renewal rents are down on average by 23% and the average outstanding leases are only two years long. Rent averages out at 12% of turnover.

The group also has 17 freehold properties which are being revalued down by £3.1m to £5.3m which will lead a significant change to 2019 full year profits.

The board has three members Anthony Smith and Charles Smith who are related and Jonathan Fearn Chief Financial Officer. The business was bought in 1980 by Michael and Christopher Smith so there has been a long term family involvement.

This is either good as the board is full of people experienced in the business or bad as the board may have become set in its ways.

What is slightly worrying in the recent announcement is a combination of the increase in the number of Big Box shops and an expected drop in profits.

Whilst the Big Box and Digital growth elements of the Group's strategy are progressing strongly, in the short term, their performance has been offset by the tough high street trading environment.

There seems to be insufficient information available to determine if these new Big Box stores and digital are doing well in their own right or are simply taking sales from the high street. As prices are low customers may be willing to make an effort to go to a high street store, but why bother if you can order on line or when there is a shop in a major shopping centre?

In many ways Shoe Zone is a Sports Direct, pile it high, sell it cheap and Sports Direct seem to be struggling with their “elevation” plan, their go up market strategy. I would be worried that Shoe Zone may be trying the same thing and will have the same problems.

Currently they have no debt, but I see this as positive only as long as they don't decide to incur some to expand/upgrade stores.
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