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Results: Is the Accent Group Ltd (ASX:AX1) dividend too good to refuse?

It has been a disappointing day of trade for the Accent Group Ltd (ASX: AX1) share price. The footwear retailer’s shares are down almost 7% to $1.39 in afternoon trade following the release of its full year results.

For the 12 months ended July 1, Accent posted a 4.9% increase in sales (including The Athlete Foot franchise store sales) to $860.8 million and a 9.3% increase in company operated sales to $675.6 million. This was driven by a 2% lift in like for like sales and the opening of new stores. During the period 31 new stores were opened and 15 were closed, increasing its store count to 446 stores.

Another key driver of its sales growth was the ecommerce channel. Despite the arrival of Amazon in Australia, Accent grew its digital sales by 131% on the prior corresponding period.

CEO Daniel Agostinelli appears to believe that this growth can continue. He stated that “Digital sales continued to grow strongly and beyond expectations. With a nationwide network of 446 stores and digital sites, we are uniquely positioned in our sector to deliver an integrated, seamless customer experience through click-and-collect, click-and-dispatch, endless aisle and same day delivery.”

Things were even more positive at the other end of the income statement. Thanks to a significant improvement in its gross profit margin through vertical brand sales and reduced discounting, Accent grew its net profit after tax by 17.9% to $47.1 million.

This led to underlying diluted earnings per share of 8.78 cents and allowed the board to declare a fully franked final dividend of 3.75 cents per share. This brought its full year dividend to 6.75 cents per share, up 12.5% on the prior year and equating to a payout ratio of approximately 77%.

Outlook.

Accent has had a strong start to FY 2019 and has seen like for like retail sales growth of 4.6% during the first seven weeks of the financial year.

This means the company is tracking a touch ahead of its like for like sales growth target for FY 2019. It is targeting mid-single digit EBITDA growth this year, based on low single digit like for like sales growth, continued strong growth in digital, and growth from new stores.

It also expects continued margin improvement through increased vertical brands penetration, new emerging brands, and reduced discounts.

Should you invest?

I thought this was a strong result from Accent and I’m surprised to see its shares tumble lower today. Especially given the low multiple they trade on and the generous 4.8% dividend yield they offer.

Though, considering almost 37 million shares that were issued to HYPE DC shareholders came out of escrow at the start of the month, I wouldn’t be surprised if some of these have been offloaded today and are weighing on its share price.

I think Accent would be a good investment, especially after today’s dip, and would class it as a buy along with fellow retailers Adairs Ltd (ASX: ADH) and Noni B Limited (ASX: NBL).

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Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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