Accent share price lifts following key ROI decisions

Accent is making some major changes…

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Key points

  • Accent shares are rising after the retailer announced some major changes to its store network
  • The company will be transitioning its Pivot brand to other high performing banners 
  • Accent also revealed that its margins have been better than expected during the second half

The Accent Group Ltd (ASX: AX1) share price is having a better day on Thursday.

At the time of writing, the footwear focused retailer’s shares are up 1.5% to $1.47.

Why is the Accent share price rising?

Investors have been bidding the Accent share price higher today after the retail conglomerate announced some major changes to its operations.

According to the release, the company has recently undertaken a review which examined the future investment requirements, ease of scalability, and return on investment (ROI) across all of its businesses and brands.

What are the changes?

The release advises that the company will continue to invest in new stores, with 140 stores expected to open in FY 2022. It will also close stores where sustainable renewal terms cannot be achieved.

Management intends to accelerate the growth plan for Glue Store, which it notes is continuing to perform strongly. This will include growing vertical apparel brands acquired with Glue Store.

The Stylerunner business will also continue its ambitious growth plan, with a strong focus on the Stylerunner The Label vertical apparel and further store rollouts.

Continuing with the theme, Accent will look to grow the Trybe business and pursue more buy backs of The Athlete’s Foot franchise.

It isn’t all good news for its brands, though. One brand that won’t be continuing its journey is Pivot. Management intends to transition 14 Pivot stores into other banners within the group. It made the decision after determining that it is still a long road to strong investment returns and that the resources utilised in this business can be better deployed by converting the stores into other high performing banners. This is expected to result in one-off, non-cash charges of approximately $5 million in FY 2022.

In addition, the company will not be renewing the Sperry distribution agreement which expires in December. It will also restructure the Reebok distribution agreement to move the distribution to a new Australian distributor. However, it will retain access to a full range of Reebok products at strong margins for the next 10 years.

To support these decisions, the company’s management structure has also been refocused and simplified. This will see its operations split into three divisions, each with its own CEO.

Management commentary

Accent’s CEO, Daniel Agostinelli, was disappointed with the Pivot situation but believes it is in the company’s best interests. He said:

“This review enabled us to have a clear view on those businesses which deliver, or which we believe will deliver, strong positive investment returns so that we may in turn continue to invest and drive growth in those businesses.

We are naturally disappointed to be transitioning the Pivot stores, but we have always taken a strict approach to value creation and if something isn’t meeting our return hurdles, then we look to redeploy our assets to other parts of the business or to new businesses that do so.

To that end, we are continuing our aggressive growth plan for Stylerunner and accelerating our growth plan for Glue Store.”

Trading update

Also potentially giving the Accent share price a lift today was an update on its current performance.

While its trading update was short on detail, it revealed that sales have improved from the 10% like for like sales decline reported for the first eight weeks of the second half. However, management concedes that sales are still subdued compared to expectations.

Nevertheless, thanks to its focus on a full price, full margin sales strategy, the company has seen an improved gross profit margin ahead of both expectations and last year. Furthermore, overall inventory levels are in line with plan, although it continues to experience some delays and cancelations from third party brand partners.

No guidance has been given for the remainder of the year due to ongoing uncertainty.

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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