An Accent on retail results
Youth fashion retail Accent Group, (ASX:AX1) reported FY24 results that were aligned closely with the company’s 18 July trading update. Broadly speaking, the results demonstrated steady performance despite challenges.
Because the stock had surged into the result amid sympathy with competitor Universal Stores’ very strong report, the share price subsequently plunged after Accent Group reported results that were in line with guidance.
Accent Group announced FY24 earnings before interest and taxes (EBIT) of $124.6 million, fitting within the previously guided range of $123.2 million to $125.2 million. Importantly, this figure includes a significant one-off charge of $14.2 million in 2H24 related to Glue store brand value/store closures, bringing the reported FY24 EBIT to $110.4 million.
Total owned sales for FY24 reached $1.43 billion, marking a 3.0 per cent increase compared to the previous corresponding period. Like-for-like (LFL) retail sales grew by 1.7 per cent. The number masks an acceleration in the second half to a 4.1 per cent increase versus a 0.6 per cent decline in 1H24.
Wholesale sales, although down 16.9 per cent versus the previous corresponding period, showed improvement from a sharper 25 per cent decline in the first half.
The gross margin for the year was 55.8 per cent, up almost 60 basis points from FY23’s 55.2 per cent, but the cost of doing business (CODB) as a percentage of sales rose to 45.9 per cent, higher than FY23’s 44.5 per cent. This result reflected the impact of cost inflation, lower like-for-like retail sales in 1H24, and reduced wholesale sales. Notably, there was an improvement in the CODB in the second half, driven by stronger like-for-like sales and achieved cost efficiencies.
The company expanded its physical presence in FY24 with 93 new store openings and 19 closures, ending the year with 895 stores. Accent Group plans to close or transition 17 underperforming Glue stores by early 2H25 as part of its ongoing portfolio review.
Longer term, the company is undertaking an operational cost review to further reduce the CODB from FY25 through FY27 and is testing the U.S. market demand for Nude Lucy through an online store. The out-of-favour CAT brand means the company’s distribution agreement will not continue beyond December 2024.
The start of FY25 has been described as promising with total sales up 8.7 per cent in the first seven weeks compared to the previous corresponding period. LFL retail sales are also up by 3.5 per cent, cycling a 1.8 per cent decline but down from the second half of last year, which saw LFL sales up 4.1 per cent. Accent Group plans to open at least 50 new stores in FY25, signalling continued expansion but ongoing closures of underperforming stores means a net 33 stores which compares unfavourably to market expectations of 36 net new stores.
Accent Group’s trading performance improved notably in 2H24, with positive trends continuing into FY25. The company is well-positioned to absorb rising CODB through inflation. It should achieve this through sustained LFL sales growth and cost efficiency initiatives over the next three years. Strategic lease renewals and the closure of loss-making Glue stores are expected to further enhance profitability, potentially contributing an estimated EBIT benefit of more than $3 million.
Notwithstanding the recent short-term trading-related share price volatility, one imagines the market will approve of Accent Group’s proactive approach to managing costs, optimising store portfolios, and exploring new market opportunities.
Roger Montgomery is the Founder and Chairman of Montgomery Investment Management. Roger has over three decades of experience in funds management and related activities, including equities analysis, equity and derivatives strategy, trading and stockbroking. Prior to establishing Montgomery, Roger held positions at Ord Minnett Jardine Fleming, BT (Australia) Limited and Merrill Lynch.
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