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Trading over the last 18 weeks has been robust with strong revenue growth. Online continues to increase in the mix and while the backdrop in retail has been less than helpful, all channels have seen growth.
Footasylum
Interims have come in as expected with gross margins and underlying EBITDA impacted by the well-flagged gross margin decline, delays in openings and higher cost base. We have made no changes to our FY19E expectations.
Downgrading for the second time this year is highly disappointing. Delays to new store openings and upsizes mean these are unlikely to contribute much ahead of Christmas.
Footasylum is investing for growth in areas where there is a more predictable rate of return. The focus on more store upsizes is sensible as this aligns its strategy with the brands it retails but should also ensure a more predictable payback on capital spend.
FOOT held a brief CMD yesterday with presentations led by CFO Claire Nesbitt and CFO Danielle Davies. Overall we found the presentation credible and the management knowledgeable. That said the strategy is based significantly on physical expansion from 65 current UK stores to a target of 150 in the UK and EBITDA margins are low (at 7.6% 2/17A v JD Sports 13%) and likely to remain so in the near term as the business invests in infrastructure.
Footasylum offers a double-digit EPS CAGR from store roll-out, a highly accretive digital model and a new wholesale business. The sustainability and predictability of revenues hinges on a deep understanding of its customer base.
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