Shoe Zone - back on track?

Shoe Zone: This is one of the stocks that floated last year, but has struggled to match investors’ expectations. The low point was the trading statement in April, when poor sales were blamed, in part, on warm weather leading to higher sales of ankle boots at the expense of dearer long boots. They operate at the budget end of the market (average price c£10!), from over 500 shops. These are often in secondary locations, but the group is in the process of upgrading their portfolio of shops, so that they are larger and can stock more styles. The top tier stocks around 400 styles and accounts for 40% of the stores by number, whilst the lowest (third tier) stocks around 300 and now accounts for 27% of the store portfolio. They also sell accessories such as bags, whilst on-line sales, although small, are growing fast.

Today’s interims, to 4^th April 2015, reflect that recent profit warning, but trading does seem to have stabilized. Revenue was down 5.7%, whilst operational gearing left pre-tax profits down 26% to £2.0m, despite gross margins edging up to 60.5% from 60.2%. Eps were 3.2p against 3.7p, with an interim dividend of 3.2p declared. The group is cash generative and has £5.9m in the piggy bank. My prejudice, having witnessed the fragmentation of the once great Sears Holdings, is that mass UK shoe retailing is a really tough segment. Shoe Zone is set up for the modern world, but low price points and fickle fashion trends still require the group to display very nimble footwork, so I think it will be difficult for Shoe Zone to ever achieve a premium rating. However, for FY2015, forecasts are for eps of 15.7p, which, even after today’s c8% rally to 180p, is a PE of just 11.5x. A 60% payout ratio indicates a dividend of 9.4p, for a tempting yield of 5.2%, whilst the cash balance is forecast to still be growing over the current forecast horizon. A further reassurance is that Anthony Smith (CEO) and Charles Smith (COO) own over 50% of the equity, so they have plenty of skin in the game. So, Shoe Zone may be a tiddler at a market capitalization of c£89m, but with a safe looking and growing dividend stream it may be just what an adventurous income investor is looking for. (Neil Cumming^, 10^th June 2015)

These comments are not a personal recommendation to deal. Any investments can fall as well as rise in value, so you could get back less than you invest. I may have a financial interest in some of the stocks written about. www.dividendpower.co.uk or e-mail at info@dividendpower.co.uk  Twitter:  @DividendPower