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Shoe Zone: on the front foot After coming to the market in May at 160p, footwear retailer Shoe Zone has put its best foot forward, delivering both earnings and share price growth. Shoe Zone is a discount footwear retailer operating online and through more than 500 stores across the UK and Ireland. Originally a family-owned business, Shoe Zone’s modern form can be traced back to 1980 when brothers Michael and Christopher Smith acquired Bensonshoe. A trio of acquisitions in 2007 and 2008 (Stead & Simpson, Shoefayre and Shoe Express) saw Shoe Zone grow further.

no debt and a net cash position In the year to 5th October 2013 on a continuing basis, Shoe Zone made revenues of £193.9m and a pre-tax profit of £9.3m. Both figures were significant advances on the previous year. As at April 5th, the company had no debt and a net cash position of £7.8m. Shoe Zone has thrived by making itself the destination for the cheapest footwear on the high street. According to statistics issued pre-IPO, the average price of a pair sold in Shoe Zone was just £9.77. There’s a great logic to this. Many shoe purchases are deliberately short term such as party or holiday-wear. There is little advantage to paying a premium for children’s shoes either as they have such a short life. 4

The UK recession and the absence of a recovery in living standards have also had a significant beneficial impact on Shoe Zone, pushing more customers into the stores. By delivering value, Shoe Zone has retained these shoppers and grown significantly. This is a theme that is playing out across the UK’s high streets. Unashamedly budget retailers such as Poundland, Wilkinsons and Aldi are thriving while the middle tier providers are being squeezed hard. Shoe Zone represents a great way for AIM investors to access the budget retail theme. Management has committed to rewarding its shareholders by adopting a progressive dividend policy. The consensus forecast in the market is for a generous 12.3p dividend for 2015. At current prices, that would place the shares among the highest yielding on AIM.

lower rents to be a big driver of profit growth Shoe Zone plans to deliver further growth through increased direct factory orders and scaling back price reductions. High street turmoil is presenting great opportunities for the company to optimise its store estate.

Indeed, Shoe Zone expects lower rents to be another big driver of profit growth going forward. Online channels are growing strong (up 27% in 2013) as the company’s free delivery offer proves popular.

average price of a pair sold in Shoe Zone was just £9.77 Shoe Zone encapsulates many of the characteristics most desired by equity investors. The company has no debt. It is successful. The founding family retains a large stake in the business and executive managers are part of the family. The company is well placed to capitalise on trends within its sector and its growth strategy is already delivering results. SHOE ZONE (LON:SHOE) FOR Leading position in niche Multi-channel growth likely to continue AGAINST Family stake will hold back liquidity Could lose if economy improves Market cap Bid:offer P/E (forecast) Yield (forecast) 52week low:high

£107m 212p:215p 12 3.6% 168p:227p

October 2014 AIM Prospector  
October 2014 AIM Prospector  

Featuring five AIM-quoted companies: Brooks Macdonald, James Halstead, Polar Capital, Shoe Zone and Victoria plc.