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HY21: Can the Accent (ASX:AX1) share price keep running higher?

The Accent Group Ltd (ASX: AX1) share price will be under the spotlight as it reported its FY21 half-year result after the market had closed.

Accent Group is a shoe retailing business with more than 500 stores, 19 brands and 20 websites. It operates businesses like The Athlete’s Foot and The Trybe. It sells brands like Skechers, VANS, Dr Martens and CAT.

Accent’s FY21 half-year result

It reported that total sales grew by 6.6% to $541.3 million. Like most retailing businesses, Accent saw a large increase in digital sales – there was growth of 110% year on year. Online sales made up 22.3% of total sales. The group opened 50 new stores during the half and closed five where required rental outcomes could not be achieved. It ended the half with 565 stores.

Accent’s gross profit margin improved by 140 basis points (1.40%) from 56.7% to 58.1%. The Athlete’s Foot in-particular experienced a strong increase in its gross margin.

The sales growth helped underlying EBITDA (EBITDA explained) rise by 44% to $97.5 million and EBIT grew 47.3% to $81.8 million.

Net profit after tax (NPAT) went up by 57.3% to $52.8 million and profit / earnings per share (EPS) increased by 56.9% to 9.76 cents.

Accent balance sheet and dividend

Accent said that it had a strong balance sheet at the end of the period, with $72.8 million of cash.

The profit growth and the strength of the balance sheet allowed the board to announce a 52.4% increase of the interim dividend to 8 cents per share.

Outlook

Accent revealed that it now expects to open at least 90 stores in FY21 across all banners, with more expected to be opened into FY22. It plans to have 15 Pivot stores open by June 2021 as well as 4 Stylerunner stores. The Trybe store rollout will recommence after a successful first half.

In the first eight weeks of FY21 it has seen like for like sales growth of 10.7%, which includes store closures due to various lockdowns in different locations (like Brisbane and Auckland). Digital sales during this period were up 65.4% year on year and continue to make up more than 20% of total sales. The back to school trade across the business was particularly strong.

Accent Group CEO Daniel Agostinelli said: “Accent’s integrated digital capability, large and growing store network, strong portfolio of exclusive distributed brands and emerging capability in building new business formats and vertical products continues to drive strong sales and margin growth. The management team remains focused on driving digital growth and innovation. With long-term objectives and incentives linked to driving at least 10% compound earnings per share growth, Accent continues to be defined by strong cash conversion and the consistently strong returns it delivers on shareholders’ funds.”

Summary thoughts

Accent is a high quality business in the retail world. If I were already a shareholder, I’d be delighted at the level of growth and dividend payments. It now has a rolling annual fully franked dividend yield of 5.3%. There could be another large increase for the final dividend with the full year result.

The big question is – how long can this growth go on for? Is it being supported by government stimulus and the fact that people can’t spend on other categories like travel or large events? I’m not sure, so I feel uncertain about investing at this Accent share price when it’s close to an all-time high. The store rollout and online sales are promising though.

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At the time of publishing, the author of this article does not have a financial or commercial interest in any of the companies mentioned.

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