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Budget footwear seller still has considerable appeal despite recent setbacks

Sterling’s recent rebound helps to alleviate a margin headwind for Shoe Zone (SHOE:AIM). Its value proposition is a source of strength in tougher economic times. The stronger pound should ameliorate pressures on the consumer wallet while boosting the firm’s overseas purchasing power.

The company’s full year results to 30 September 2017 revealed a 7.8% drop in pre-tax profit to £9.5m with the prevailing weaker pound increasing the cost of Far East imports. Gross margins were 120 basis points higher at 63.2% thanks to improved sourcing and stock management.

Rent reductions are enhancing the profitability of the existing estate. Shoe Zone is making positive steps online, UK sales are building through its own website and international markets (Europe, US) are opening up through the use of Amazon’s online sales channel.

Furthermore, the roll-out of its Big Box concept, which sells a broader product range and widens the customer base, offers an additional growth avenue.

For the year to 30 September 2018, Numis forecasts an improvement in pre-tax profit to £10m (2017: £9.5m) on £161.8m worth of sales (2017: £157.8m) and a year-end net cash pile of £12.6m.

It estimates Shoe Zone will increase the dividend to 10.5p (2017: 10.2p) and achieve earnings per share of 16.6p (2017: 15.8p)


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