Shoe Zone (SHOE) - a good fit for a portfolio?

Sunday, Oct 11 2015 by

Today I've taken a look at Shoe Zone (SHOE). Is it a good fit for my portfolio?

My opinion:
A trading update for the year end is due on 27 Oct. I am going to wait until that’s published to see if there are signs of the company growing. My preference is always to buy cheaply rated companies that look like they will have earnings upgrades in the next 12-24 months (like Fairpoint PLC).

To me this company looks like its revenue is slowing year-on-year. Its H1 results have fallen two years in a row which looks dodgy to me. See Stockopedia data for financial performance over the last few years. The brand looks outdated and dull, and the shoe selection is hardly exciting. Will they just get knocked out the market by other upcoming retailers such as Boohoo?

The management has also lost the confidence of the investor community after a profit warning earlier in the year. There are some parallels with ENTU there. Maybe it listed recently because they are worried the company is moribund so perhaps the owners are trying to make money while they can (hence the dividend target of 60% of profits?).

Based on broker estimates the company is trading on a P/E of about 11 in the current year which does not look like a bargain given uncertainty about future earnings. I will watch this one for now. I might consider buying some in the short-term if the share fell to around 145p (i.e. P/E of 9 on current year estimates which would allow for further reductions in revenue).

About the company:
Shoe Zone (SHOE) basically sells cheap shoes. It has 553 stores in the UK and Ireland. Shoe Zone sells over 20 million pairs of shoes per annum and, in 2013, the average retail price per pair of shoes was £9.77. According to its website, it is able to maintain low retail prices due to high volumes ordered, direct sourcing from factories and a low product line count. 95% of products are made in China.


Free delivery is available on all orders. It also sells products through Amazon (which represents 17% of online revenue). Online availability seems good from the random shoes I picked on (no sizes were out of stock).

Growth strategy:

The company seeks to achieve profit growth through targeted online sales growth and through the opening of larger stores in…

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Shoe Zone plc is a footwear retailer in the United Kingdom and the Republic of Ireland. The Company offers women's shoes, men's shoes, boy's shoes and girl's shoes. The Company's online offering combined with its store network enables customers to shop through multiple channels. The Company operates from a portfolio of approximately 550 stores. Its customers purchase all of the products available in stores, as well as an additional approximately 400 product styles. The Company sells over 20 million pairs of shoes per annum. The Company has operations in various countries, including Germany, Italy, Spain and France. The Company's distribution center is located in Leicester, England. The Company's subsidiaries include Castle Acres Development Limited, Shoe Zone Retail Limited, Zone Property Limited, Zone Group Limited, Shoe Zone (Ireland) Limited, Shoe Zone Pension Trustees Limited, Stead & Simpson Limited, Zone Footwear Limited, Zone Retail and Walkright Limited. more »

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10 Posts on this Thread show/hide all

herbie47 11th Oct '15 1 of 10

This was discussed a few weeks ago here:

It does not look very attractive to me. I don't see Boohoo.Com (LON:BOO) as a problem but Primark as they expand is more of a concern.

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paraic84 11th Oct '15 2 of 10

Ah yes, I should have checked that! Same pun too. However, I don't think enough intention is being paid to its falling year-on-year revenues.

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janebolacha 12th Oct '15 3 of 10

In reply to post #107967

Quite apart from the growth of online shopping, most chains of women's clothing stores now stock shoes (I don't only mean trainers), including Primark, New Look, Next and M&S, of course. Perhaps the supermarkets in UK do the same, they certainly do in France and Spain. The whole concept of the stand-alone shoe shop might well be dying and Shoe Zone's business model might well be becoming redundant, perhaps? Is anyone else even trying to do what Shoe Zone are doing? Perhaps that tells us quite a lot? An analogy could be in the neighbourhood clothes shops, once ubiquitous but which now seem to have almost disappeared. Even boutiques for younger women seem now to be few and far between. Perhaps Shoe Zone need to rethink seriously their whole business concept so as to avoid being increasingly pushed out on to the margins of the market, serving a gradually diminishing market sector of people unable, for whatever reason, to access greater choice. I don't know, a "Shoe Zone" within Morrisons supermarkets, perhaps, with a smaller but fast-moving range? Certainly, I really fail to see a prosperous long-term future for this company as it is now.

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paraic84 12th Oct '15 4 of 10

In reply to post #107982

There are a lot of stand-alone shoe shops such as Clarks and more middle market or upmarket ones like Dune, Kurt Geiger, etc etc. The issue for Shoe Zone I think is more that its shoes and its brand look dull. Will be interesting to see any signs of a change in that in the results at the end of the month.

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janebolacha 12th Oct '15 5 of 10

"There are a lot of stand-alone shoe shops such as Clarks and more middle market or upmarket ones like Dune, Kurt Geiger, etc etc."

Not at all the same, though. The average retail price of a pair of shoes at Shoe Zone is less than ten pounds. They are definitely competing head-on with people such as Primark and with the supermarkets.

So while a dull range and dull image do certainly come into it, the issue for Shoe Zone goes much beyond that, imo. I'd question whether there is a worthwhile niche for them in the long term without a new strategy.

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andrewdb 12th Oct '15 6 of 10

Stepdaughter goes to Primark and buys a new outfit on what feels like a weekly basis but is actually about every 6-8 weeks.
That new outfit includes matching shoes from Primark about half the time.

She also has some Vans (upmarket in her view) . I don't see her in a shoeshop of any sort.

Best of luck to Shoezone as I think they will need it.

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TangoDoc 13th Oct '15 7 of 10

I bought a modest holding in SHOE a few weeks ago after doing a bit of chatting up shoe salesmen, mostly while killing time while my wife looked for hours at shoes. It seemed that the entire shoe selling business had come under the cosh, partly because of a mild winter, resulting in far lower sales in the run up to Christmas 2014 but, in one city, several high fashion, expensive shops had closed. One household named shop we went to had a most indiscrete young salesman who told me how many changes of ownership there had been in a short while and how they had been obliged to start their "sales" period a month earlier than usual. Lessons had been learned and it is widely believed that we may well see snow in November. I hear on the news today that the first snow in Europe has already fallen.

I believe much of the stock SHOE sells comes from China. I'd be surprised, given the turndown in the Chinese economy, if Mr Smith was unable to strike some very advantageous deals now. He lives quite near to me and, by a coincidence, we shared an employee for some years. I got to hear enough about Mr Smith to be very sure that he is an extremely shrewd cookie indeed. As the major beneficiary of dividends, I feel certain he'll keep these growing.

I gather that some pundits felt that the previous declaration relating to profits last year was a bit naive of SHOE management, suggesting that their job was to be able to spin bad news better to attempt to keep the share price up. I can't say that concerns me too much.I'd be much more unhappy about evidence of smoke and mirrors. I just want a slice of their ongoing profits and am delighted if I can get this sort of return for a few years. From what I heard in the shoeshops, it could be that in the tough world of shoe selling, SHOE zone is the equivalent of Lidl. With over four more years of a benefits cutting government, I believe there is a reasonable future for good cheap shoes. A blizzard before Christmas is a bonus.

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TangoDoc 11th Jan '16 8 of 10

The SP fell by almost 10% today with not a shred of information to explain it. What's most odd is that results come out in a couple of days time. I emailed the CFO who replied that they had no idea why this happened and that he would ask the brokers for clarification. I'll report all I hear, but meantime, I still think this company has legs.

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hayashi22 12th Jan '16 9 of 10

I don't think people look to buy when the weather is rainy as it might spoil their new shoes.

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herbie47 12th Jan '16 10 of 10

I notice 2 directors in October sold over £2m worth each @ 190p, does not bode well?

Shares falling before an announcement, could be a leak or insider dealing.

When are the results due? Can't see any date, last year was 14 Jan.

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