UK off-price shoe retailer Shoe Zone widened its net loss for the fiscal half ended March 28, to £5.3 million ($7.2 mm) from £2.3 million a year ago. Sales dropped 12.0 percent to £62.9 million ($85.8 mm).
The loss before taxes expanded to £5.3 million from a loss of £2.3 million a year ago. The year-ago period included a £300,000 gain from foreign exchange. On an adjusted basis, the year-ago loss before taxes was £2.6 million.
Shoe Zone said in a statement, “Shoe Zone experienced a very challenging trading environment in the period against the continuing backdrop of weak consumer confidence and macro/global economic volatility.
The sales decline in part reflects 19 fewer stores compared to 12 months ago. It ended the quarter with 53 Original stores and 206 larger format stores. Digital revenue in the quarter declined 6.0 percent, to £17.1 million.
Shoe Zone said the latest second quarter included £500,000 in impairment and asset write‐offs. Shoe Zone said, “Excluding these items, underlying trading performance in Q2 improved relative to Q1, although both quarters were negatively impacted by the macroeconomic and geo‐political.”
Gross margins eroded to 11.8 percent from 15.4 percent a year ago. Product margins increased to 61.7 percent from 59.4 percent due to lower container prices and a more favorable sterling to dollar exchange rate. Shoe Zone said, “Container prices have been stable over the last six months, but the war in Iran has seen fuel price increases which will have a negative impact for the rest of the financial year.”
Administration expenses reduced by £500,000 to £9.2 million, due to a reduction in store impairments/write offs, partly offset by a lower foreign exchange gain. All other costs were either in line with last year or lower. Distribution costs remained the same at £2.8 million.
Shoe Zone on April 22 lowered its guidance for its fiscal year, blaming two tax increases by the UK government over the past year and the Middle East conflict for deteriorating sales. The retailer now expects a loss in the range £1.0 million to £2.0 million ($1.4 million to $2.7 million), down from previous expectations of a £1.0 million adjusted profit before tax.
Shoe Zone said in its latest statement, “Trade continues to be negatively impacted by a further weakening in consumer confidence, following the Government’s last two budget announcements, as well as the geo‐ political issues in the Middle East. These macroeconomic factors have increased customer caution, leading to lower footfall and less discretionary spend. The Middle East issues have also resulted in a higher cost of containers and general transportation costs.
“The second quarter showed an improvement in underlying trading compared to the first quarter, however, the trading environment continues to be difficult and has been further impacted by worsening geo‐political conditions in the Middle East. Over the last 12 months we have seen more stability in the price of containers, and a strengthening of sterling against the dollar, but these conditions have recently reversed as fuel prices have increased and sterling has weakened, both of which are expected to negatively impact the second half of the year.”
Image courtesy Shoe Zone
