“Robust” Shoe Zone sees digital surge, but higher costs will dent annual profits

Value-focused footwear and accessories retailer Shoe Zone on Tuesday released its half-year results for the period to the end of March, with the company generally making progress, if not seeing spectacular increases.

The company’s revenue rose only 1.5%, reaching £76.5 million. And store revenue actually fell 2.8% to £59.4 million. That said, digital revenue bounded ahead by as much as 19.6% to reach £17.1 million.

It all meant that profit before tax rose from £1.5 million a year ago to £2.6 million. But adjusted profit before tax was flat at £2.5 million. Adjusted items this time included a £0.1 million forex gain while last year it made a forex loss of £1.3 million, offset by a property gain £0.3 million.

The company continued to make progress in rightsizing its estate and at the end of the period had 309 stores compared to 323 locations a year earlier. They included 162 in its more productive new format compared to only 135 in the previous period,

The retailer also said that it made annualised lease renewal savings of £200,000, an average reduction of 28%.

Chairman Charles Smith called it a “robust performance against a continuing backdrop of consumer uncertainty and macroeconomic volatility”. That statement is justifiable given that while those total revenues only edged up by 1.5%, it was trading out of 27 fewer stores than 12 months earlier And that almost-20% digital increase was clearly a strong one.

He added that trading in all channels was positive and the strong performance across online channels came with additional growth from its online exclusive range and range extensions.

The firm had a big focus on opening new-format stores and closing old-style stores during the period as well as refitting other locations and it said it’s actively working to relocate and refit further stores in the second half, together with a number of stores currently in the pipeline that will be opening before Christmas.

All of this is requiring heavy investment and the company expects to spend over £10 million on capital projects this year and during each of the following two years.

But the investment is clearly paying off and it said its conversion of its original stores to its new format continues to have a very positive impact. The ultimate goal is for 300 new-format stores in the medium term with it trading from a similar retail square footage but a reduced number of locations.

As for the digital growth, that impressive leap in online revenues came as it continued to invest in new product lines and additional brands as well as enhancing its platform. It also developed a mobile app and added more payment options to boost sales in this area.

And another sign of success digitally is that its returns rate has dropped slightly, hitting 11.4% this time compared to 11.9% a year ago. The vast majority of its returns go back to its physical stores, which is why that network is so critical to its success.

So what is it expecting for the rest of the year? The original full-year profit forecast was £15.2 million, although this has been revised down to £13.8 million. This is partly due to a higher than expected increase in the National Living Wage that added to its costs. And it said the continuing disruption in the Middle East has increased its shipping times and container prices, also driving costs higher.