I’m on the look-out for some bargains at the moment, and have noticed Shoe Zone (LON:SHOE) is sitting on my watchlist at c.52p – an all-time low. In April it fell to around 60p before climbing to around 100p, and falling back to its present level. Basic EPS for 2019 was 11.4p and underlying EPS was 18.4p. As well as being at the value end of the highstreet, is Shoe Zone (LON:SHOE) at the (good) value end of the stock market?

This is an easy business to understand. It sells cheap shoes which may potentially position it well during the recession. It has a large number of high street stores but its currently strategy is to move more towards ‘big box’ sites, which may work better for COVID given it is easier to implement social distance measures in these locations. This might also be important for the rush to buy back-to-school shoes given kids usually need to try on multiple pairs (see commentary below). However, at end of December the company had 45 stores out of a total store base of around 550. Digital sales are relatively low but rose during lockdown (see below).

In the past the company paid a reasonable dividend but it recently indicated it will be unlikely to pay dividends for some time to repay debt.

66% of shares are not in public hands, so the senior leadership should be highly motivated here.

Note I am an amateur part-time investor with no real expertise on balance sheets so definitely DYOR!

Recent performance

In the six months to 4 April (H1) the company made revenue of £68.9m – compared to £73m in H1 18/19. In the year to February – so ignoring March 2020 – the company noted revenue growth was 2.6%. Not a fantastic rate of growth but not a disaster either. One bright spot is that digital growth had been 31% in the half, albeit from a low base and still only representing less than 10% of revenue.

Statutory profit before tax in the half was -£2.5m compared to £1m a year earlier (the full year net profit for 2019 was £5.7m). Note there is a seasonal bias so historically H1 results don’t contribute as much to profits. I assume – but I am guessing – this is partly related to parents buying new shoes for school so it might…

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