Footasylum margins slashed amid tough trading

Shares of troubled Footasylum, the recently-floated Rochdale youth footwear and apparel retailer, fell more than 15% after it published an update on its trading performance for the 18 weeks ended December 29, 2018.

Footasylum said total revenue was up 14% to £102.3 million, and up 16% year-to-date to £200.8 million — but full-year 2019 gross margin is now expected to be lower than previously anticipated “due to higher than expected levels of promotional and clearance activity.”

Footasylum said the short-term outlook for the firm is “undeniably challenging” and that it is facing some of the most difficult trading conditions seen in recent years.  

In its outlook, Footasylum said: “The challenging trading conditions reported in the first half have continued throughout the Christmas trading period.

“UK economic uncertainty and weakening consumer sentiment have led to some of the most difficult trading conditions seen in recent years.  

“Against this market backdrop, promotional activity and discounting across the retail sector were higher than anticipated, with the result that Footasylum’s levels of promotional and clearance activity were greater than expected during the period.

“Consequently, while the company has sustained its revenue growth across all channels, gross margin has been lower than previously expected for the period.

“Therefore, while Footasylum continues to expect to report FY19 revenue in line with consensus expectations, FY19 gross margin is now expected to be lower than current consensus expectations.

“The board continues to maintain its strong focus on cash and working capital management.

“Inventory was carefully managed throughout the period, with inventory balances ending the period only fractionally higher year on year.

“Footasylum remains (and expects to remain) in compliance with the covenants of its £30 million multi-currency revolving credit facility.

“Reflecting this focus, and the lower gross margin performance, the board is implementing a cost reduction plan across the business which may result in some exceptional costs in FY19.

“Footasylum now expects to report an adjusted EBITDA for FY19 towards the lower end of the current range of analyst forecasts.”

Footasylum executive chairman Barry Bown said: “In the context of the current tough conditions on the high street, we are encouraged to have delivered revenue growth across all of our channels and major product categories, with online and wholesale continuing to perform particularly well.

“We have also been pleased by the performance of the five new store openings and three upsizes that we completed in time for Christmas. 

“However, the short-term outlook is undeniably challenging, and we continue to maintain our focus on cash, working capital and inventory management, as well as reducing costs across our operations.

“The current trading conditions have led to significant discounting and promotional activity across the sector, and this in turn has impacted our gross margin expectations for FY19.”