Footwear retailer Accent Group shares wear down as lockdowns cut $40m from earnings

Shares in footwear retail giant Accent Group (ASX: AX1) fell by more than 6 per cent this morning after CEO Daniel Agostinelli revealed the expected impacts of recent lockdowns on the bottom line, putting a downer on yesterday's announcement of a new exclusive distribution deal in Australia and New Zealand for Reebok.

The Reebok deal is for an initial 10-year period, adding to a portfolio of brands that also includes Hype DC, Stylerunner, Vans, Athlete's Foot, Dr Martens, Platypus and more.

Interlaced with the company's digital strategy with online sales now representing more than a fifth of sales, Accent's stable of brands have served it well since the pandemic began and it was one of the early movers on the ASX to voluntarily close its network of some 470 stores in March last year.

The group stepped up to a record $76.9 million profit in FY21, but government-mandated store closures in NSW, VIC and ACT bit into a major chunk of Accent's network in the months that ensued with retail sales including digital down $86 million below plan in the 18 weeks to 31 October.

"Accent Group’s sales and gross margins for the first 18 weeks ended 31 October were significantly affected by government mandated store closures of more than 400 of our stores in Australia and New Zealand, resulting in group EBIT being approximately $40 million below the original management plan for the same period," Agostinelli said in an update today.

"During that period, there was also a significant focus on controllable costs and targeted promotional activity ensured that inventory remains well managed."

On a more positive note, he said digital sales in the September quarter were up by around 65 per cent on top of what was already very significant growth last year.

"Pleasingly, our conversion rates continue to grow, driven by improved customer targeting and website capability," the CEO said.

"The Group is targeting digital sales to be at least 30 per cent of total sales over time, leveraging our existing best in class digital capability, more than 8.4 million contactable customers, and continued investment in virtual sales channels, CRM tools, express delivery capability and loyalty programs."

Agostinelli said the company had experienced a strong spike in sales and improved gross margins since the re-openings of New South Wales and Victoria, ahead of key Cyber, Christmas and Back-to-School trading periods.

Since re-openings, like-for-like store sales in NSW have been up 8.4 per cent year-on-year, while in VIC they've risen 5.9 per cent.

"We are pleased with trade over the last several weeks and are optimistic about the coming months, assuming uninterrupted trade over this period," he said.

"Accent Group continues to invest in the key elements of its growth plan. The Company opened 63 new stores in the first 20 weeks to 14 November and now expects to open more than 120 new stores in FY22."

He said the group planned to grow its store network to 700 across Australia and New Zealand by the end of the current financial year.

In other developments, Accent opened new concept stores in Chadstone and Highpoint in Melbourne for Glue, a youth fashion retailer acquired in April. The group plans to roll out this store format in three new locations before Christmas.

Stylerunner, a brand Accent acquired as an online pure-play business in 2019, now has 14 stores trading and a further six to open by January 2022.

"We plan to have 20 stores trading by early 2022, including entry into the New Zealand market, and we are targeting 40 stores to be trading by Christmas next year. We are targeting a 60- plus store network in Australia and New Zealand within the next three years," Agostinelli said.

"Stylerunner now also ships internationally to USA, Singapore and Hong Kong. There are strong early results and we are watching and testing the US market closely."

Due to the uncertainty around trading conditions due to COVID-19, the Accent board has determined not to provide any forward guidance.

"I would like to thank our team, customers, suppliers and landlords for their support and resilience through what has been a very challenging trading period," Agostinelli said.