Shoe Zone makes progress, new hybrid format added, but profits stay small
today May 21, 2019
Value footwear chain Shoe Zone may have seen its sales falling slightly in the first half up to March 30, but the company’s ability to boost its product gross margins helped to keep profit on an even keel.
On Tuesday the company said that revenue dipped to £73 million from £73.7 million a year earlier, but its product gross margins rose to 62% from 60.6% and that meant statutory pre-tax profit was flat at £1 million.
Digital sales increased by 4.9% to £5 million, achieving a profit contribution of £1.5 million compared to £1.2 million last time. The range of products it sells exclusively online has grown by 185% since October 2018 and associated revenue delivered for the period rose 150%. New product ranges such as Ruby Shoo and Rocket Dog have been successfully introduced and it expects this profit-boosting broadening of the offer will continue to accelerate now that it has a digital shoe buyer on board.
There were some other positive developments for the company with rent on renewals falling on average by 18.5%, although rent as a percentage of turnover remained static at 11.9% as it opened more large-format locations.
Despite all this, the basic profit figure wasn’t the most impressive for a business of Shoe Zone’s size. Yet CEO Nick Davis was upbeat and said: “The first half of our financial year has been positive, trading in line with management's expectations and achieving profitable revenue growth in our two key growth areas of digital and big-box.”
The company is investing heavily in those big-box locations and had 26 of them operational at the end of the period (out of a total of around 500 stores), with 33 due to be up and running by the end of this month and a target of 45 by the end of 2019.
It has also started trials for a new ‘hybrid’ store format in more affluent demographic areas which “encapsulates the look and feel of a big-box store in a high street or shopping centre environment.” The stores sell all the Shoe Zone ranges and big-box brands “where the additional brand presence in the locality does not conflict with other retailers,” and it said the trial is still in its infancy “but initial results are encouraging.”
Davis added that trading momentum has continued into the second half, in line with market expectations. The company said that “the progress being made through the current growth strategy, including management of the cost base and particularly the property portfolio, coupled with the fundamental strengths of the business model provides the board with confidence that Shoe Zone is insulated against many of the structural issues faced by other retailers.”
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