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Retailer takes action to mitigate difficult trading conditions

We are keeping the faith with budget footwear purveyor Shoe Zone (SHOE:AIM) despite the uncertain sector outlook.

The company pays an attractive dividend which we think is sustainable and its new large store format is letting the company trade in previously-inaccessible towns.

The ‘big box’ format is more modern than its existing 500+ high street stores and sees Shoe Zone stock third party brands such as Skechers and Rieker alongside its own-label products, thereby widening the appeal of its offering.

Stockbroker Numis forecasts scope for £5m-plus of operating profit from the new format in six years’ time, if successfully expanded to a 60 store target. Three trial stores are currently open, while another six stores are planned for 2017.

The ‘big box’ format represents an exciting new source of growth to accompany the early-stage-yet-profitable online operation, where growth is accelerating from a low base.


The company’s full year results (reported on 11 January) were below market expectations as a result of tough trading conditions, store closures and currency headwinds.

We are encouraged by the way Shoe Zone is coping with these challenges. It is negotiating rents downwards, exiting unprofitable outlets and growing the proportion of Grade 1 stores – by bearing down on costs and increasing direct sourcing from China.

Smaller Companies Table Shoe Zone

Its products have an average retail price of just £10. That should resonate with shoppers should inflation crimp disposable income in 2017 and beyond. Moreover, its price-sensitive customer demographic should benefit from higher minimum wage levels.


Numis forecasts improved pre-tax profit of £10.5m (2016: £10.3m) for the financial year to September 2017, while a forecast dividend of 10.4p implies a yield of 5.8%.

Stockbroker FinnCap warns that investment in future ‘big box’ stores and multichannel sales initiatives, together with additional pension contributions, could mean that Shoe Zone rethinks paying special dividends. It has previously rewarded shareholders with extra cash rewards on top of the normal dividends.

At 178p, Shoe Zone is attractive for its generous distributions and the upside from the Big Box

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