Shoe Zone upbeat despite H1 sales dip, says transformation is on track
Value footwear retailer Shoe Zone was in an upbeat mood on Wednesday morning even though it reported that sales and profits for the first half that were lower than a year ago.
Why the cheerfulness? The company is in the middle of a transformation programme that is changing the way it does business. That means more big-box stores, more multi buy deals, more direct sourcing, more accessories and more e-tail. And it believes all this is positioning itself for stronger future growth.
So let’s dive into the earnings report and see if we agree. In the six months to April 1, revenue dropped to £72.9m from £74.6m and underlying profit before tax dipped to just £1.3m from £1.7m, none of which looks great. But the first clue to the changes at the firm is that product gross margin improved to 62.8% from 61.1%.
It’s clear the company is managing to wrestle more profit per square foot out of its retail operations and the work it has been doing is directly responsible for this. For instance, footwear orders placed directly with overseas factories increased to 83.4% from 72.2% in the period, and sales from non-footwear ranges (including handbags, school bags, lunch boxes, purses and accessories), increased by 24%. Shoe Zone product has also become available across Europe via Amazon Marketplace, giving it an open door into new markets without having to invest in new stores.
The company, which is currently celebrating its 100th birthday, operates from 504 stores in the UK and Ireland and employs around 3,500 people there. It also has a growing web business.
CEO Nick Davis said he was “pleased with the group's performance,” although the devaluation of sterling against the dollar hurt statutory profits in the period. But as the company reaches the first anniversary of the pound’s post-Brexit vote plunge, Davis said “we anticipate the ongoing impact will be significantly reduced."
He said the firm’s big-box store trial “has continued to perform well and as such, we will accelerate roll out of the concept during the second half.” He is aiming to have 10 big box stores by the end of the year and will continue to open the larger format stores next year too.
But stores are not the only focus. Multi-channel continues to show strong profitable growth, with sales rising 30%. And it wasn’t just the widening of its offer through Amazon Marketplace that drove those web sales higher.
Shoe Zone said email continued to be a strong source of online sales growth with its email club membership having grown by 18%. It sent an additional 3.6m targeted emails during the period. Meanwhile, mobile visits accounted for 76% of its web traffic, up from 70% and mobile revenue grew to 66% from 57% with the company understandably continuing to develop mobile technology as the primary focus of its digital strategy.
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