This morning footwear retailer RCG Coproration Ltd (ASX: RCG) reported a net profit of $29.1 million on revenues of $636.1 million for the full year ending June 30, 2017. The profit is down 2.6% on a statutory basis compared to the prior year.
On an underlying basis adjusting for one off costs the group handed in a profit of $39.9 million which represents growth of 21% over the prior year. It also met just above the mid-point of its final guidance to deliver $78.3 million in underlying EBITDA (operating income) after a year that was troubled by weak retail conditions on the back of flat wage growth and growing consumer debt profiles.
The underlying EBITDA is up 30% on the prior year, with the group paying a final fully franked dividend of 3 cents per share to take the full year total to 6 cents per share on earnings per share of 7.48 cents.
RCG's CEO commented on the results: "In addition to delivering another record result, we completed the acquisition of Hype DC and fully integrated it into our operating structure. In addition we opened more than 50 new stores, commenced the rollout of the TAF (Athlete's Foot) performance store format, and delivered three new, best-of-breed eCommerce sites".
Over the year the group's Athlete's Foot stores posted like-for-like sales growth of 0.5%, with flat revenues and EBITDA falling 8% to $12.6 million.
The group attributed the profit falls to a year of heavy investment in new Athlete's Foot store formats, staff recruitment, and promoting its online sales. As a result of a year of investment RCG's management is "confident" that it can "deliver positive sales and profit growth in FY18 and beyond."
RCG's youth fashion operation Accent Group delivered the lion's share of underlying EBITDA at $67.1 million, under the umbrella of its Hype DC stores that have brands such as Skechers and Vans. Like-for-like retail sales were up 2.6% on the prior year, which is a reasonable result given the problems across the retail sector over FY 2017.
The group's online sales also grew 79% over the year as it continues to invest in this space given some in the market believe RCG's market share could be challenged by US online retailer Amazon Inc.
At 81 cents the group trades on just 11x earnings with a trailing dividend yield of 7.5% plus the tax effective benefits of franking credits.
Should you buy?
Remarkably, RCG Corporation was selling for as little as 59 cents a couple of months ago when I took the opportunity to buy shares and given its reasonable outlook and well-managed nature I expect it still offers good value at 81 cents.
The group does carry just over $100 million in debt, but if you believe it will be able to modestly increase revenues, profits, and dividends over a 3-to-5-year timeframe there's little doubt it's good value. I'm happy to back its management team and competitive position to deliver growth on the balance of probabilities and expect it could produce excellent total returns over the years ahead.
In early trade the stock is up 6% to 84 cents.
