Why the Accent (ASX:AX1) share price is sinking 9% today

The Accent share price is ending the week deep in the red…

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The Accent Group Ltd (ASX: AX1) share price has come under pressure on Friday.

In early trade, the footwear retailer’s shares have fallen 9% to $2.34.

Why is the Accent share price tumbling today?

Investors have been selling down the Accent share price today following the release of a trading update ahead of its annual general meeting.

As you may have guessed from the share price reaction, that update was not an overly positive one.

According to the release, trade for the first 18 weeks of FY 2022 (ended 31 October) was significantly impacted by the state and territory-wide government mandated store closures in New South Wales, Victoria, and the ACT. Extensive lockdowns were also experienced in New Zealand, where Accent has a large and growing store network.

These closures across Australia and New Zealand impacted more than 60% of the company’s store portfolio (more than 400 stores), which unsurprisingly impacted its sales and gross margin.

Management estimates that the impact on owned retail sales (including digital) for the first 18 weeks was $86 million. This is approximately 26% below the original management plan.

In addition, Accent’s gross margin was down by 700 basis points as it continued its targeted promotional activity to ensure that inventory was well managed.

And while the company made savings on controllable costs, it wasn’t enough to stop its earnings falling well-short of plan. Management estimates that its group earnings before interest and tax is $40 million below the original management plan for the first four months of FY 2022.

What about the future?

The good news is that Accent appears to be over the worst of its issues now.

Management notes that it inventories remain clean of aged stock and there is approximately $20 million of additional stock largely sitting in core and current seasonal styles.

As a result, it believes the company is well positioned to take advantage of customer demand from November to January, and is not expecting any material impacts or inventory shortfalls from globally reported supply chain issues.

However, due to the ongoing uncertainty around trading conditions due to COVID-19, Accent has decided not to provide any forward guidance at this time.

Accent CEO, Daniel Agostinelli, commented:  said “Given the significant short-term impact of the government mandated store closures around Australia and in New Zealand, I am pleased to say that we have exited this period “Match Fit”, with our stores, team and inventory in great shape to take advantage of the key Cyber, Christmas and Back-to-School trading periods. We have continued to invest through this period in the key elements of our growth plan and these remain well on track. Most pleasing is the progress in new stores with more than 120 new stores to open this year.”

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Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has recommended Accent Group. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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