The Athlete’s Foot owner Accent Group warns on profit as Covid-19 hits sales

The country’s largest shoe retailer issues its second profit warning this year as Covid-19 and the winter flu keep shoppers away from the stores.

Accent Group CEO Daniel Agostinelli has issued the retailer’s second profit warning this year as Covid-19 and the winter flu keep shoppers away from stores.

Accent Group, the footwear specialist behind chains Platypus, Hype and The Athletes Foot, has issued its second profit warning since January as consumer traffic at its stores is yet to recover, sounding an ominous warning for retailers for the upcoming reporting season.

With reporting season only weeks away from taking off which will see dozens of retailers issue their latest financial results - and crucially commentary around trading conditions and the state of the consumer - the warning from Accent could quickly become a trend among other companies that operate in the discretionary retail sector.

On Friday Accent said its pre-tax earnings are now expected to slump by more than half to $61m for 2022, compared to $86m forecasted by analysts. This is against EBIT of $124.9m in 2021.

Shares in Accent dived more than 11 per cent on the profit downgrade and could spark concern in the market that other discretionary retailers might soon follow suit by issuing their own profit warnings in the face of fresh waves of Covid-19, drops in consumer confidence and pressure on household budgets driven by rising interest rates and inflation.

Some drags on profitability are particular to Accent however, with the company booking $5.1m in write downs related to the transition of its PIVOT shoe stores to other footwear brands within its group.

Accent ended down 17.5 cents at $1.34 and are down 45 per cent since the beginning of the year.

Accent, which is the biggest shoe specialist retailer in Australia, said on Friday that the company now expected earnings before interest and tax for fiscal 2022 to be between $61m to $63m.

The expected EBIT range includes approximately $7.6m of one-off charges. These charges relate to the previously advised writedown of PIVOT store fit-out costs and around $2.5m of impairment charges relating to store lease assets in a small number of stores where customer traffic levels have still not recovered.

In April, Accent said that sales performance from late February had improved over the 10 per cent fall in like for like sales reported for the first eight weeks of the new year but was subdued compared to expectations.

That followed a warning in January when it became the latest retailer to warn of a slump in sales and profit flowing from the Omicron outbreak over Christmas.

It told the market then that it expected underlying earnings for the December half to drop by more than 60 per cent as foot traffic at its stores were well down in the final weeks of December — in particular Boxing Day as a result of Omicron.

That downward pressure on customer traffic at its stores has continued well into the second half and will now pinch full-year earnings.

“Sales across May and June continued to be subdued compared to expectations as we continued our focus on driving full price full margin sales,” said Accent chief executive Daniel Agostinelli in an ASX statement.

“Pleasingly, gross margin rate was ahead of the prior year and since the back end of June we are now starting to experience more normal undisrupted trading conditions across most of the store network.”

He said the first three weeks of fiscal 2023 have seen a return to strong deliveries of new product and a positive customer response.

“Like-for-like sales for this period have been positive albeit against restrictions and store closures in July last year, gross margin rate has also tracked well ahead of the prior year.”

Mr Agostinelli declined to be interviewed on the profit warning.

Accent will report its full-year earnings on August 18.