Footasylum PLC (LON:FOOT) shares have stumbled once again this week thanks to a second profit warning in just a few months.
June’s share price plunge came as the trendy ‘athleisure’ retailer said increased investment in its stores would hit this year’s bottom line.
Monday’s announcement was another cut to this year’s profit forecast, although this time Footasylum blamed “challenging” trading conditions over the summer.
READ: Footasylum trips as it cuts full-year earnings again
Other retailers, particularly those on the high street, have also echoed those sentiments but analysts think Footasylum’s problems could be closer to home.
Back when the company floated on AIM almost a year ago, management was adamant that its core, fashion-conscious 16-24 demographic would continue to splash out on trainers and trackies regardless of the economic backdrop.
AJ Bell investment director Russ Mould says that argument has now been “heavily undermined” as it obviously hasn’t been the case.
It might not be as simple as that, though. City broker Peel Hunt reckons youngsters might be spending less at Footasylum because one, some of the new product lines aren’t what they want, while, two, the brands they do like can increasingly be found elsewhere.
Bad buys
“We suspect that the buyers, whilst having decent access to the big brands, have made the odd mis-selection,” read a note to clients.
“Additionally, some of the brands that FOOT has helped to develop (such as Gym King for example), but are not exclusive, have become increasingly available elsewhere (GK can be found on ASOS and Amazon amongst others).”
Those issues have left Footasylum with a lot of clothes and trainers that it can’t shift and so the firm has had to slash its prices.
“We now have a situation where some of both the shoes and the clothes in the stores are in need of marking down (and more importantly are not going to draw anybody in, something that will take months to fix),” added Peel Hunt.
Wrong store sizes
Perhaps the biggest issue investors have had with Footasylum’s latest announcement is the “unforeseen delays” in new store openings and upsizes of existing stores.
When it floated, Footasylum was promising rapid growth, fuelled by the opening of between eight and ten new stores every year for the next few years, plus a string of upsized stores.
Analysts reckon the current stores are too small and that the company has pulled the plug on new ones because they would have been similar in size.
The five outlets that were due to open any time now have been pushed back until December, while the number has been cut to four next year.
Unsurprisingly then, sales expectations, which had been based on an aggressive expansion plan, have had to be slashed.
After the second warning, Footasylum said it now expects full-year underlying earnings (EBITDA) to be less than half of what it achieved in 2017.
Worse to come?
Analysts, who have cut their new space contribution, like-for-like sales and gross margin forecasts, think more revisions could be on the way.
“Our new assumptions all have possible downside and it’s not easy to see much upside,” said Peel Hunt.
“New space could easily miss the Christmas peak and slip into the New Year. LFL could go negative given the issues with the buy. The excess stock could require a deeper markdown than currently expected, and the cost base may not be as flexible as would be optimal.”
Footasylum shares were down once again on Wednesday morning, dropping another 15% to 32.5p. That’s still above Peel Hunt’s price target of 22p, but a whopping 80% below its IPO price of 164p.