Shoe Zone shares tank as it warns on profits, CEO resigns

Shares of value footwear retailer Shoe Zone tanked on Friday as it warned over its full-year results amid difficult trading conditions and announced the immediate departure of chief executive Nick Davis.

The company said trading conditions since the interims back in May have been "challenging". While the Big Box and digital growth elements of its strategy are progressing "strongly", in the short term, their performance has been offset by the tough high street trading environment, it said. As a result, full-year results are now anticipated to be below the group's expectations.

In addition, following a review of its freehold property valuations, Shoe Zone has decided to write down the value of its 17 freehold properties by £3.1m to £5.3m. This will result in a non-cash exceptional charge in its full-year results for the year ending 5 October 2019.

The write-down will not have any impact on the dividend, which will be calculated on the basis of the underlying trading performance, and the company said it does not expect to pay a special dividend for the current financial year.

The trading update came as CEO Davis handed in his resignation to "pursue other business interests".

Executive chairman Anthony Smith will resume his role as CEO on a permanent basis, while chief operating officer Charles Smith will assume the role of interim executive chairman.

Smith said: "As has been widely publicised, the UK High Street is currently facing a challenging environment in which to operate. The pressure on the retail property market has enabled Shoe Zone to achieve an average 23.5% fall in rents on renewal and average outstanding lease length of only two years. As a consequence of this and the tough freehold property market, our freehold assets had to be revalued to represent fair value and give us future flexibility.

"While we therefore face a short-term impact on our balance sheet, we do not anticipate any change to our dividend policy, reflecting our confidence and excitement in the long-term growth opportunities through the Big Box roll-out, continued operational improvements and our multi-channel proposition."

At 0810 BST, the shares were down 36% at 123p.

Russ Mould, investment director at AJ Bell, said: "Expectations were very low at the start of 2019 for the retail sector following a very difficult time for the industry last year. Much to many people’s surprise numerous companies have this year come out with fairly decent trading updates including JD Sports, Dunelm and Next, suggesting that retail was still alive and well.

"Among the companies proving to be fairly resilient was Shoe Zone, helped by having some levers to pull such as securing rent reductions and closing its weaker stores. It also helped that the company sold affordable but essential products.

"To now have a profit warning from the company would suggest the retail sector is still a brutal place in which to operate. The high street is to blame for Shoe Zone’s woes with the company’s underperformance understood to be across all regions, product types, prices and brands.

"A value retailer like Shoe Zone will have to rely on high volumes of sales to make money which is a problem when footfall is weak on the high street. With the economic outlook for the UK looking gloomy, life could get even harder for the company and so it will have to do everything it can to improve brand awareness, product marketing and keep a lid on costs."