Shoe Zone sees sales boost amid store overhaul

Budget footwear group Shoe Zone (SHOE) has managed to grow sales while closing stores – an unlikely combination in the retail sector. It ended FY2023 trading out of 37 fewer locations, yet bricks-and-mortar revenue was nonetheless up 4 per cent to nearly £135mn. 

An oversupply of commercial property is proving advantageous for the company, with management hoping to “significantly improve” its portfolio in the medium term. The company managed to negotiate annualised rent reductions of £0.7mn on 53 store renewals – amounting to an average rent cut of 31 per cent.

These conditions in the property market come as the group is carrying out a mass-scale reformatting of its shops. By the end of 2026 it aims to have shuttered all of its original Shoe Zone locations. In their place will be either 'big box' or 'hybrid' alternatives . The former are designed to be based in larger, out-of-town premises, as opposed to high-street locations.  

Hybrid stores will sell a mixture of Shoe Zone’s cheaper, own-brand footwear and more expensive branded alternatives. Management said it ultimately anticipates trading from a similar level of square footage, albeit from a smaller number of locations. 

The group is also building out its digital offering, with online revenues increasing 17 per cent to £31mn (due largely to strong sales on Amazon). In the next 12 months it also plans to introduce Apple and Google payment options and a new returns portal, as well as launching a mobile app. 

Shareholders have been rewarded with a total annual dividend of 11.4p, as well as a special dividend of 6p. The effective yield for FY2023 is therefore 7.6 per cent. With next year’s forward price/earnings multiple sitting at just 9.3 times, we think Shoe Zone looks like an increasingly attractive prospect, particularly given the increased consumer focus on value pricing. Buy.

Last IC View: Hold, 157p, 8 Jan 2020