For a company so new to market, a one-day, 48 per cent fall in the share price just isn’t what you want. But trainer specialist Footasylum (FOOT) – an offshoot of JD Sports (JD.) – suffered just this fate on the release of its 2018 annual numbers. Admittedly, these figures met market expectations, but projections for the coming year put some analysts on edge. Chief financial officer Danielle Davies confirmed that the contraction in the gross margin, down 90 basis points to 45 per cent, is likely to continue, especially as the business grows its wholesale and online operations. Shifting old stock is also a problem, so further discounting should be expected.
The board has also changed tack when it comes to store openings and refurbishments. At the time of the IPO last November, bosses said they wanted to focus on new sites. While this remains the case, the group will carry out more “upsizes”, than previously planned. This will add to the rent bill this year, and reduce cash profits by around £1.4m.
However, the market’s concerns don’t stop there. While the board now claims this is simply an “investment phase” in the company’s history, broker Peel Hunt says this isn’t what investors “signed up for at float”. Analysts there are also concerned over longer-term issues, specifically the retailer's relationship with some of the key sports brands such as Nike and Adidas. Manufacturers are increasingly determined to go straight to the consumer, rather than sell products via multiple retail partners. As such, these relationships have been whittled down, and Peel Hunt suspects further cuts will be made. While groups such as JD Sports have a wide reach across global markets, effectively making their position with manufacturers more secure, Footasylum can’t yet boast the same footprint.
In the shorter term, analysts at Peel Hunt have trimmed their forecasts for the coming year and now expect pre-tax profits of £5.3m (previously £7m) for the year ending February 2019, giving EPS of 4p (previously 5.3p), compared with £8.4m and 6.2p in FY2018.
| FOOTASYLUM (FOOT) | ||||
| ORD PRICE: | 70.5p | MARKET VALUE: | £74m | |
| TOUCH: | 70-71p | 12-MONTH HIGH: | 269p | LOW: 70.5p |
| DIVIDEND YIELD: | nil | PE RATIO: | na | |
| NET ASSET VALUE: | 40p | NET CASH: | £11.4m | |
| Year to 24 Feb | Turnover (£m) | Pre-tax profit (£m) | Earnings per share (p) | Dividend per share (p) |
| 2015* | 78.0 | 0.4 | na | na |
| 2016* | 110 | 3.6 | na | na |
| 2017 | 147 | 8.1 | 8.0 | nil |
| 2018 | 195 | 1.9 | 0.2 | nil |
| % change | +33 | -76 | -98 | - |
| Ex-div: | na | |||
| Payment: | na |
