Home World Business RCG cuts profit guidance 11pc as footwear sales soften

RCG cuts profit guidance 11pc as footwear sales soften

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Footwear retailer RCG Corp has slashed full-year profit guidance by 11 per cent – the second downgrade in three months – after sales of brands such as Skechers, Vans and Doc Martens remained weak in March and April.

RCG, which owns Hype DC, The Accent Group and The Athletes Foot, now expects underlying earnings before interest tax depreciation and amortisation for the year ending June to come in between $74 million and $80 million, compared with $60 million in 2016.

The small business disrupting the uniform market

The family business ‘Cargo Crew’ disrupted the uniform market by approaching the retail wholesale model in a new way.

RCG shares plunged 20 per cent to 67¢ by lunchtime on Monday, taking losses since February to more than 50 per cent.

RCG cut its guidance in February from $90 million to between $85 million and $88 million after like-for-like sales at Hype went backwards in the eight weeks after Christmas and sales growth slowed in the Accent division. 

RCG co-chief executive Hilton Brett has downgraded profit guidance for the second time in three months after lacklustre ... RCG co-chief executive Hilton Brett has downgraded profit guidance for the second time in three months after lacklustre footwear sales. Photo: Supplied

RCG acquired Hype from founders Danny and Cindy Gilbert last August for $99 million, cementing its status as Australia’s largest sneaker retailer, just 15 months after the transformative $200 million acquisition of shoe retailer Accent Group in August 2015. The Gilberts stepped down as co-chief executives of Hype in March.

RCG’s co-chief executive Hilton Brett said on Monday trading conditions had been challenging in the last two months, confirming anecdotal reports that discretionary spending had remained lacklustre since consumers snapped their handbags closed after Christmas.

Mr Brett said like-for-like sales in the Accent Retail and Hype business in March and April were flat. Whilst this was an improvement on trading between Boxing Day and mid-February, when Hype like-for-like sales fell 2.8 per cent, sales had not met management’s expectations.

The Athlete’s Foot failed to grow sales, despite gains at rival chains such as Super Retail Group’s Rebel Sport, while same-store sales at RCG’s vertical retail business had fallen 5 per cent since mid-February and wholesale sales were below expectations.

Market peak?

The latest downgrade is likely to fuel fears that the athleisure trend has peaked after five years of strong growth.

“The slowing sales that RCG is experiencing are in line with our view that the growth rates experienced by athleisure footwear will moderate as the cycle matures,” Citigroup’s small cap consumer analyst Sam Teeger said in a recent report.

RCG has now shed 60 per cent of its market value since August 2016, when it outlaid $99 million in cash and shares for Hype to increase its exposure to the street footwear category.

Mr Brett said RCG had been caught up in a widespread sell down of retail stocks due to factors including declining consumer confidence, subdued wage growth, concerns around the outlook for the housing market and the perceived impact that Amazon’s market entry would have on retail earnings.

“In addition, the board believes that there is uncertainty in the market regarding the intentions of the former owners of Accent when their share escrow expires on May 27 2017.

“Those former owners who are directors of RCG have confirmed that they have no intention of selling shares into the market at these levels,” he said.

Strategy defended 

Mr Brett defended RCG’s retail and omni-channel credentials, saying that in addition to 400 physical stores and outlets in Australia and New Zealand the retailer has a fully integrated e-commerce capability across its TAF, Platypus, Hype, Skechers, Vans, Merrell, Saucony and CAT brands. E-commerce sales have grown more than 65 per cent  during fiscal 2017.

RCG offers customers the option of buying online and picking up in store, ordering from the entire inventory range in-store and having the goods shipped direct, as well as the ability to exchange or return in store any product bought online.

“Moreover, each retail banner continues to invest in the in-store customer experience, with the continuous focus on, and evolution of, store fitout, technology and innovation, marketing and visual merchandising, and the training and engagement of its in-store personnel.  

“Notwithstanding the subdued environment, the fundamentals of the RCG business remain as strong as ever,” he said.

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