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Key points
- The Accent share price has been falling this year
- COVID impacts are hurting the retailer's trading
- Management are confident about the long-term potential of the company with more stores, more brands and more sales online
The Accent Group Ltd (ASX: AX1) share price has fallen 17% in 2022. Does this now make it an attractive opportunity?
Accent is a large shoe retailing business in Australia. It sells through a wide array of different brands, both owned and with distribution agreements, such as Skechers, The Athlete's Foot, Trybe, Stylerunner, VANS, Timberland, Platypus, Glue Store and Dr Martens.
One of the main factors that can impact investor thoughts about a company is its trading performance.
Accent recently released its trading update for the six months to 26 December 2021. This could be affecting the current Accent share price.
Trading update
Like for like sales across November and December 2021 were down 3.4% compared to the period in the first half of FY21, but up 4.8% on the pre-COVID period of the first half in FY20.
The shoe retailer said that its digital sales remained "strong" throughout the period and the gross profit margin in December "recovered well" and was above expectations. Accent said that it drove full-price trade in the lead up to Christmas.
Management said that the trading was broadly in line with expectations, with strong demand after the reopening of Victoria and New South Wales.
However, store traffic and sales in the final week of December, and in-particular Boxing Day, were well down on expectations and the prior year, which Accent attributed to the rise of the COVID-19 Omicron variant case numbers and the related impact to store traffic.
The Omicron effect seems to have impacted the company across all banners and states, including in New Zealand, with the most significant impact in New South Wales.
Trading in the first four weeks of January continues to be adversely impacted by COVID. Inventory levels at the end of December were back in line with the original plan. There have been delivery delays from external suppliers across December and early January.
Profit expectations
In terms of how much profit Accent is expecting, HY22 earnings before interest and tax (EBIT) is expected to be between $30 million to $31 million. Profitability can be a key driver (or detractor) for the Accent share price.
Accent's growth plans
Whilst management are pleased with the performance considering the COVID impacts, it points to some factors that will help grow the business over the long-term.
One key selling strategy is its omnichannel business model. This means that customers are able to buy products in-store or shop online, whichever is the most convenient for them.
Accent points to several growth avenues for the business. Its digital sales are rising. The ASX retail share is adding new stores to its network. It can benefit from vertically-owned brands and exclusive distribution agreements which remain "highly relevant" and management believes position the company well for the future.
One of the latest distribution agreements is a 10-year deal with Reebok so that Accent can exclusively distribute Reebok products in Australia and New Zealand. Accent plans to grow the Reebok brand through existing wholesale accounts, direct online sales and through its multi-brand retail brands, all of which currently stock the brand including Glue Store, Stylerunner, Platypus and others.
Accent valuation
At the current Accent share price, it's valued at 11x FY24's estimated earnings with a grossed-up dividend yield of 10.6% for FY24.
