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Jan 8, 2019
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Footasylum has mixed Xmas, relies on markdowns, aims to cut costs

Jan 8, 2019

Footasylum has had a tough time of it in recent periods and the company, which is still relatively new to the stock exchange, has seen its share price being punished severely as a result. So did its Christmas trading update offer any signs of an upturn on Tuesday?


Yes and no, but the lack of clear recovery signs sent its shares down as much as 15% in early trading. On the plus side, it saw further revenue growth across all channels and major product categories, despite challenging trading conditions. But its FY19 gross margin is now expected to be “lower than previously anticipated, due to higher than expected levels of promotional and clearance activity.”

The UK-based fashion retailer, which focuses on the branded leisure footwear and apparel markets, said the 18 weeks ended 29 December saw total revenue rising 14% to £102.3m. 

But that was a slight slowdown on the performance earlier in the year as sales rose 16% year-to-date to £200.8m. 

Online continued to perform strongly in the holiday season, up 28% to £36m, and also up 28% on a year-to-date basis. That means e-tail now accounts for 33% of total revenue, up from 30% a year ago. Wholesale revenue doubled from £1.3m to £2.6m.

And unlike some of its retail peers, it also saw revenue from stores rising by a fairly healthy percentage. It was up 5% at £63.7m, “despite the challenging UK high street trading conditions and the previously announced delays in delivering planned upsizes and new stores.”

It said that five new store openings and three upsizes were completed ahead of Christmas, and it’s “encouraged by their progress to date.” That means the firm now operates 70 stores in the UK, 68 of which are the core Footasylum chain.

But the problems that have driven the company’s share price much lower certainly haven't gone away. It said that the “challenging trading conditions reported in the first half have continued throughout the Christmas trading period. UK economic uncertainty and weakening consumer sentiment have led to some of the most difficult trading conditions seen in recent years.”

That resulted in promotional activity and discounting across the retail sector that “were higher than anticipated,” and it seems the company had to follow suit in order to generate sales growth. Hence the downgrade to its gross margin expectations.

But it said that it continues to maintain its strong focus on cash and working capital management. “Inventory was carefully managed throughout the period, with inventory balances ending the period only fractionally higher year-on-year.” 

And the consequence of all this? The board is “implementing a cost reduction plan across the business which may result in some exceptional costs in FY19. Footasylum now expects to report an adjusted EBITDA for FY19 towards the lower end of the current range of analyst forecasts.” 

At least that downgrade didn't see it predicting profit below analyst forecasts. But exactly what its profits will be will have to wait until it reports its results for the year on May 21.

Executive Chairman Barry Brown remained upbeat though. He said: "In the context of the current tough conditions on the high street, we are encouraged to have delivered revenue growth across all of our channels and major product categories, with online and wholesale continuing to perform particularly well. We have also been pleased by the performance of the five new store openings and three upsizes that we completed in time for Christmas.

“However, the short-term outlook is undeniably challenging, and we continue to maintain our focus on cash, working capital and inventory management, as well as reducing costs across our operations.”

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