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Shoe Zone: Built To Last

Published 01/17/2017, 02:13 AM
Updated 07/09/2023, 06:31 AM

Shoe Zone PLC (LON:SHOE) is well supported by a running dividend yield of over 5.5%, which, as a result of strong cash conversion, should be topped up by frequent special dividends. The early success of the new Big Box format hints at a new source of growth to accompany the early-stage online business, the international potential of which will be explored this year.

Further progress in FY16

Despite tough trading conditions in H1 and the closure of loss-making stores as part of an ongoing programme, FY16 revenues only declined 4.2% to £159.8m. However, improved product margins and loss elimination allowed PBT to advance £0.2m to £10.3m. Critically for the investment case, cash generation was strong, with net cash increasing by £0.8m to £15.0m despite higher capex and a special dividend.

Good strategic fit

Shoe Zone’s programme to close unprofitable stores will continue. It will remain focused on its larger grade one stores while adding more of its new Big Box format, which has delivered promising initial results. This is consistent with the industry’s inevitable move towards fewer, larger stores. Shoe Zone’s average outstanding lease length of 2.6 years provides flexibility in addressing its portfolio. It has already established a small online offer that has potential both in the UK and overseas. We maintain that discounters’ success reflects long-term social value trends that have further to run and support Shoe Zone’s market positioning.

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