Casual footwear and trainers business Accent Group Ltd (ASX: AX1) this morning reported an underlying net profit of $26.3 million on sales of $350.3 million for the six month period ending December 31 2017. The underlying profit and revenues were up 13% and 16.5% on the prior corresponding half. Underlying EBITDA (operating income) clocked in at $50 million, up 17% on the pcp.
By the end of the period the physical store count had grown by 15 to 445.
In response investors have sent the shares 25% higher to $1.10 in morning trade.
Online sales were also up 170% as the group invests heavily in its online and delivery capabilities in order to meet and even beat Amazon.com in terms of the all-round value proposition to customers.
The group will pay an interim dividend of 3 cents per share on underlying diluted earnings per share of 4.94 cents and reports that it "continues to expect its dividend payout ratio to be between 75%-80% of underlying earnings per share for FY 2018".
This suggests investors can expect higher dividends over the six month period ending June 30 2018, which means the stock is still likely to offer a yield in excess of 6% plus the tax effective benefits of franking credits for today's investor.
Therefore anyone buying into the retailer today is likely to be able to collect 10 cents or more in dividends over just the next 14 months, with the stock at $1.10 you don't need a calculator to see this is an attractive income stream on offer.
There are risks in the retail space though; including the arrival of Amazon, the indebted consumer, soft wage growth, and discounted competition for Accent Group more generally.
However, I'm more worried about being charged with theft by the police after picking up shares for just 59 cents in mid-2017 when the stock then traded on a 10%+ yield and forward earnings multiple around 6.5x. A steal for a business with a long history of profit and dividend growth alongside high insider ownership of shares in a marginally non-discretionary retail space.
Drilling down into the operating results it seems much of the profit growth came about via a margin uplift with the group's CEO flagging how the group shunned the temptation to discount, in particular over the vital Christmas trading period. The marginal gross profit lift helping offset a soft 1% rise in like-for-like sales.
Moreover, for the first seven weeks of 2018 the group reported like-for-like sales growth of 4% with underlying EBITDA up 12% on the comparable prior 7-month period. This is a strong result fuelling share price gains in anticipation of a robust rebound for a stock that still looks cheap on conventional valuation metrics.
Across its core retail banner management reported that the Platypus and Skechers brands performed "in line with expectations", with the star performer the HypeDC youth fashion brand.
The Athlete's Foot sports shoe brand performed disappointingly in an increasingly competitive space, while it also owns exclusive distribution rights to popular brands like Timberland and Merrell. In my opinion HypeDC remains the star of the show and its strength should help compensate for potential weakness in other brands.
The group also sells Dr Marten, Vans and Cat brands, among others, on a wholesale basis, with total sales of $55.1 million.
Accent also announced a number of board changes and reported "expectations for another year of profit growth".
Overall this looks a decent result, especially in the context of a tough period across the retail sector. As such I think investors could do a lot worse than buy the stock on today's valuation.
