Moneyweek7 Jan 2022 12:30
Shoe Zone
(Aim: SHOE), 110p
Shoe Zone is a well-known high-street brand that has emerged from the pandemic a far better business than it was pre-Covid-19. The shoe retailer has accelerated its digital offering and revenue has grown to £30.6m in 2021 from £10.6m in 2019. The board is now investing in its digital arm as well as transitioning from the traditional smaller high-street unit to bigger “box stores”, which boast much more floor space and are also more profitable. These units can stock more ranges of shoes and also require fewer staff, implying a boost in revenue per employee.
Shoe Zone is cash generative with net cash of £14.2m compared with £6.3m in 2020. We also know the business has been performing well recently as the full-year trading update on 13 October was followed by an upgrade to profits a few weeks later, on 1 November.
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The directors have increased their already weighty positions recently. Brothers Charles and Anthony Smith, the chairman and CEO respectively, own more than 50% of the stock, with Anthony holding 29.85%. This surely reflects confidence – if he bought any more stock he’d be forced to make a bid for the company (the threshold is above 29.99%).
Clearly, one big risk is further restrictions or another lockdown. Online sales are still far from the dominant source of revenue and, while they may receive a fillip in the event of shops shutting, it’s unlikely to be enough to cover the shortfall. The growth in Omicron cases is not good news for the company.
Shoe Zone is trading on a p/e of eight, which means the market currently either doesn’t believe in the company’s future potential, or its strong prospects have been overlooked. I’m hoping it’s the latter.