Shoe Zone plc (LON:SHOE) Better than expected demand and further strong margin performance leads to an upgrade in FY22E adjusted PBT from “no less than £8.5m” to “no less than £9.5m”. Zeus revenue forecasts increase by £1.5m (1.0%) to £157.4m and adjusted PBT forecasts (adjusted to exclude profit on the sale of freehold property and foreign exchange revaluations) increase by 12.0% to £9.5m.
¨ Trading update and forecasts: Higher than expected demand for summer products, increases our FY22 revenue estimate by £1.5m to £157.4m (+1.0%). There have also been further improvements in supply chain and cost management, leading us to increase our gross margin and operating margin assumptions for FY22E. This results in an upgrade to adjusted PBT of 12.0% to £9.5m. Today’s positive statement follows less than four weeks after a 30% adj. PBT upgrade that was communicated on 29 June, representing strong trading despite high inflation and the ongoing cost-of-living crisis. The adj. PBT upgrade drops through to a 12.0% upgrade to FY22E adjusted EPS (now 15.2p). We leave FY22E DPS unchanged at 6.8p. FY22 closing net cash (excluding leases) increases by £1.0m to £16.3m, reflecting higher expected profits. Trading forecasts for FY23E remain unchanged, although net cash is higher due to higher expected FY22E closing cash. Changes to forecasts are summarised in Exhibit 1 on page 2.
¨ Investment case: Shoe Zone’s model is highly defensive, operating in a part of the footwear market which represents a relatively non-discretionary spend to most consumers (school shoes, work boots etc.) and underpinned by a degree of structural, recurring demand (feet grow). In our view, Shoe Zone’s attractive value proposition means it is well placed to win market share as consumers seek more affordable alternatives against the current backdrop of high energy costs and food price inflation. In addition, the Group’s ongoing strategy of store rationalisation and its growing ecommerce offering means it has the potential to deliver attractive medium-term earnings growth, despite the more challenging near-term consumer outlook.
¨ Valuation: Based on latest Zeus forecasts, Shoe Zone trades on an FY22E P/E of 12.2x and an EV/EBITDAR (EV includes capitalised lease liabilities and EBITDAR includes depreciation on lease assets) of just 3.3x, with a dividend yield of 3.7%. The robust trading momentum so far this year has been very encouraging, and we continue to see scope for strong growth in Group earnings over the medium term. Our DCF implies a further 9.9% upside based on conservative assumptions, as detailed in our initiation note (“Best Foot Forward” October 2021).
Summary financials
| Price | 185.0p |
| Market Cap | £92.5m |
| Shares in issue | 50.0m |
| 12m Trading Range | 61.5p– 190.0p |
| Free float | 23.10% |
| Next Event | FY22 trading update – October |
Financial forecasts
| Yr end Oct (£’m) | 2020A | 2021A | 2022E | 2023E |
| Revenue | 122.6 | 119.1 | 157.4 | 162.8 |
| y.o.y growth (%) | -24.2 | -2.8 | 32.1 | 3.5 |
| Adj. EBITDAR | 14.8 | 28.9 | 32.6 | 29.8 |
| Adj. EBIT. | -12.7 | 9.9 | 11 | 8.3 |
| Adj. PBT | -14.6 | 8.4 | 9.5 | 7.1 |
| EPS (p) ful dil. adj | -23.8 | 13.5 | 15.2 | 11 |
| DPS (p) | – | – | 6.8 | 5.5 |
| Net (debt)/cash† | 6.3 | 14.6 | 16.3 | 17 |
| P/E (x) | n/a | 13.7 | 12.2 | 16.8 |
| EV/EBITDAR (x)^ | 9.7 | 4.2 | 3.3 | 3.4 |
| Div Yield (%) | – | – | 3.7 | 3 |
^including IFRS 16 lease liabilities
Source: Audited Accounts and Zeus estimates
