In a surprise result outcome, Accent Group Ltd (AX1), previously RCG, delivered strong progress in the first half of FY18 with integration of combined business complete and group name change from RCG Corporation to Accent Group Limited. The group has reflected distribution rights to 10 international brands and over 445 stores across 10 retail banners, and is leading as a vertically integrated multi-channel retailer and distributor of performance and lifestyle footwear.

As a result of the efforts, AX1 has reported an underlying consolidated Earnings Before Interest Tax and Depreciation (EBITDA) of $50.0 million for the half-year ended 31 December 2017, and this has been up 16.5% on the prior year corresponding period. There has been a lift in underlying Net Profit After Tax (NPAT) of 13.0% to $26.3 million while underlying diluted Earnings Per Share (EPS) of 4.94 cents, have been up 12.1%. The group’s underlying sales of $350.3m have been up 16.5% with a 170% boost from online sales (including click-and-collect and click-and-dispatch) and new store roll-outs. The first week of post-Christmas sales (week commencing 25^th December 2017) has been beneficial to the group being a key trading week.
 

First half Result (Source: Company Reports)
 
AX1 opened 22 new stores and closed 7 stores during the first half and plans to have a further 10 new stores in the second half with expansion of the Hype business to New Zealand, with stores in Auckland and Wellington. On the other hand, The Athletes Foot (TAF) business was a drag in terms of sales that were below expectations for the half. Nonetheless, roll-out out of the new performance store format, on-boarding of the decentralised eCommerce platform to be rolled out before the end of March and some key personnel changes, are expected to drive the business’ performance in the second half.

Meanwhile, Co-CEO Mr Hilton Brett is retiring from the company, effective 31 March 2018 in view of the acquisition integration.

The group has declared a fully franked interim dividend of 3.0 cents per share and expects its dividend payout ratio to be between 75%-80% of underlying earnings per share for FY2018.
Second half also seems to be have started at a positive note with like for like retail sales for the first 7 weeks of the second-half up 4%. At large, 2018 is expected to be another year of profit growth.

Overall, this result is indicative of the group moving on a resurrecting track post last year’s softness in trading and a come-back in black zone for many investors with a stock price rise of 18.5% on February 23, 2018. We give a “Hold” recommendation at the current price of $1.055

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