The Accent Group Ltd (ASX: AX1) share price will be on watch today after the ASX retailer announced its full-year results.
After being sold-off along with other retail shares in March, the Accent Group share price has staged a strong recovery on the back of improving sentiment, government schemes and promising trading updates.
Unpacking Accent Group’s FY20 results
Accent Group reported total sales of $948.9 million for the full year, up 1.5% on FY19, which includes Athlete’s Foot franchise sales. Owned sales grew by 4.5% to $807.1 million, while like-for-like sales were up 1.9%.
As previously announced, Accent Group’s digital sales strengthened throughout the period, with May being a record month. Digital sales grew by 69% on the prior year, driven by a 142% jump in the fourth quarter.
All up, digital sales represented 17% of total sales in FY20 and Accent Group believes the shift in consumer behaviour to online shopping is here to stay.
“Accent Group is well placed to capitalise on this trend with its market leading digitally integrated consumer business comprising 19 websites, 16 owned and distributed brands, more than 500 points of distribution and nearly 7 million contactable customers,” the company said.
The retailer’s gross margin was relatively flat, coming in 30 basis points lower at 55.8%. Accent Group noted this was a solid result given the lower currency impact and inventory clearance activity in Q4.
Turning to earnings, the company reported EBITDA of $121.7 million, up 11.8% on FY19, and record net profit after tax (NPAT) of $58 million, representing 7.5% growth on the prior year.
On the balance sheet, the retailer ended FY20 with cash and cash equivalents of $54.9 million. Combined with $86.1 million of debt, Accent Group finished the period in a net debt position of $31.2 million.
Retail performance
Owned retail sales grew by 6.5% to $698.6 million, with Skechers, Vans, Dr Martens, Platypus and Hype DC continuing to book sales growth.
The Athlete’s Foot also performed well, benefiting from consumer demand in the active and performance wear categories which accelerated in the fourth quarter.
Accent Group opened 57 new stores during the year, refurbished 29 stores and closed 12 stores. This takes the total store network to 524 stores at the end of FY20.
The company is planning to open 30-40 stores in FY21 across Skechers, Platypus, Hype DC, Dr Martens, Vans, Merrell, CAT and The Trybe.
Accent Group will also launch the first Stylerunner store in Armadale, Victoria in November 2020, one year on from acquiring it in 2019.
Wholesale performance
Accent Group sells shoes to other retailers, which is recorded as a wholesale sale. These retailers then on-sell the shoes to their end customers, for example, Myer selling Skechers. Accent Group has exclusive distribution rights for brands like Skechers, Vans, Dr Martens and Timberland across Australia and New Zealand.
Wholesale sales were down 6.7% for the year, impacted by lower demand in April and May. However, Accent Group said its forward sales pipeline is strong with Skechers, Vans and Dr Martens all completing record sell-ins for the second half of FY21.
Accent Group also renewed several brand licenses during FY20, including Vans and Dr Martens which were renewed to December 2023 and March 2024, respectively.
Impact of COVID-19
As previously announced, Accent Group closed all owned stores to customers from 27 March and progressively reopened stores through early May. Sales in March and April declined by $55.7 million or 58% compared to the prior year.
The company shifted its focus to accelerating digital sales from April onwards and implemented a range of cost out measures.
The company also qualified for $23.9 million in government wage subsidies across Australia and New Zealand. Given the improved performance of the business, the retailer doesn’t expect to apply for wage subsidies beyond September.
Accent Group also said it has negotiated rent relief with more than 80% of landlords, primarily covering the period from April to December 2020.
Accent Group dividend
The retailer announced a fully franked final dividend of 4 cents per share, up around 7% on the final dividend declared in FY19. This brings full-year dividends to 9.25 cents per share, an increase of 12.1% on the prior year.
Accent Group shares closed at $1.66 on Wednesday, so this full-year dividend translates to a dividend yield of around 5.6%.
Commenting on the dividend, chair David Gordon said: “In making the decision to pay a final dividend, the Board considered the impact of wage subsidies on the profit and cash position of the Company and determined that the net subsidy payments received were not required for the payment of management incentives or the final dividend.”
Outlook & trading update
Accent Group revealed that like-for-like sales across its store network for the first eight weeks of FY21 are up 1.3%, while total digital sales are up 130% year to date.
This includes the impact of locked-down stores in Melbourne and Auckland, which represent more than 20% of the company’s owned stores.
Excluding the results from the impacted stores, like-for-like sales for the first eight weeks of FY21 are up 16.6%.
As expected, given the uncertain impact of COVID-19, Accent Group decided not to provide forward guidance.
Chief executive Daniel Agostinelli concluded his comments by saying, “The management team remains focused on driving digital growth and continued innovation. In addition to the core business growth opportunities, the Company has some exciting and meaningful future growth initiatives with Stylerunner, PIVOT and The Trybe being proven models that are now in rollout phase. Accent Group continues to be defined by strong cash conversion and the consistently strong returns it delivers on shareholders’ funds.”
Summary
Like many ASX retailers, Accent Group shifted its focus to digital in the second half of the year, which partially offset the decline in in-store sales and paved the way for year-on-year growth. Shareholders will also be pleased with the bigger dividend.
Although these were solid results, I prefer to stay away from retail shares due to the cyclical nature of the retail industry. So combined with COVID-related factors (including the impact of JobKeeper payments on consumer spending), I’m happy to see how this plays out from the sidelines.
If I were to invest in an ASX retail share, my pick of the bunch would be Lovisa Holdings Ltd (ASX: LOV) due to its vertically-integrated business model, net cash position, small store footprint and founder-led management team.
