Shoe Zone (SHOE:AIM) 194.4p

Gain to date: 21.5%

Shares said to buy discount footwear retailer Shoe Zone (SHOE:AIM) on 9 June having noted its strong outperformance of the market in 2022 to date.

At the time we observed the company’s value-based offering would chime with households struggling thanks to the cost-of-living crisis. Logically Shoe Zone should be a beneficiary of any trading down and footwear is largely a non-discretionary spend.

WHAT’S HAPPENED SINCE WE SAID TO BUY?

In a matter of weeks, Shoe Zone has already upgraded guidance for 2022 twice.

First on 29 June the company said that ‘the business has been trading well and has also seen strong margin improvements and cost savings, in particular as a result of rent reductions and good supply chain management’ and noted pre-tax profit would hit £8.5 million compared with the previous consensus expectation for just £6.5 million.

Then, less than a month later on 26 July it flagged ‘higher than expected demand for summer products’ further lifting guidance to ‘not less than £9.5 million’.

In response house broker Zeus Capital noted: ‘In our view, Shoe Zone’s attractive value proposition means it is well placed to win market share as consumers seek more affordable alternatives against the current backdrop of high energy costs and food price inflation.

‘In addition, the group’s ongoing strategy of store rationalisation and its growing e-commerce offering means it has the potential to deliver attractive medium-term earnings growth, despite the more challenging near-term consumer outlook.’

WHAT SHOULD INVESTORS DO NEXT?

Stick with Shoe Zone, the valuation remains relatively undemanding at 12.3 times 2022 consensus forecast earnings, particularly given the momentum behind the business.

Shoe Zone operates in a part of the market where its products are essentials rather than ‘nice-to-haves’, with a focus on areas like work boots and school shoes. The company is also generating plenty of cash which underpins decent returns to shareholders, reflected in a 2022 dividend yield of 3.5%. 

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