Fri 05/21/2021 13:38 PM
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Relevant Documents:
Interim Results
Annual Report 2020
Preliminary Announcement 2020

U.K. retailer Shoe Zone is in negotiations with its landlords to secure better terms after it failed to meet its rental payments. The company is also in talks with its suppliers after experiencing supply disruption due to container shortages and the Suez Canal obstruction in March.

The company has suffered from declining revenue as a result of the Covid-19 crisis and related lockdowns. In 2020, it raised debt for the first time in 15 years with a £15 million Covid‐19 Large Business Interruption Loan Scheme (CLBILS) facility from NatWest. The loan requires the group to comply with certain financial covenants. It is repayable over 36 monthly payments of £194,000 and is subject to an initial interest rate of 1.22% over base increasing to 1.72% over base rate in May 2021.

The company warned in its interim results that it is “behind on rental payments as [it] continues to negotiate better terms with Landlords.” The group received rent free periods or discounts on some property leases in 2020, while some rental payments were deferred,

The company is reviewing its individual store viability and permanently closed 38 stores in the six months to April 3, refitted three stores and relocated one. It exited from the Republic of Ireland with all stores and closed its Irish eStore, As of April 3, the group had 422 stores.

Shoe Zone has experienced significant disruption in its supply chain and remains in talks with its suppliers. The vast majority of the group’s retail products are manufactured overseas by suppliers in China, and to a lesser extent India and Europe, exposing the group to FX risk and product delays.

A number of European shoe retailers are experiencing a squeeze in liquidity as a result of the pandemic, including Office, Clarks and Ludwig Görtz GmbH as reported.

Recent Performance

The U.K. shoe chain reported a 41% year-over-year drop in revenue to £40.4 million in the six months to April 3. Digital revenue amounted to £17.6 million in the first half, compared with £5.5 million in the same period last year.

The retailer experienced a fall in consumer spending, particularly in January, February and March when all stores were closed. Management said in its interim results that the company is “strongly positioned to progress positively” as non-essential shops and retail stores in England reopened on April 12.

No stores were open in the first two weeks of the second half of 2021. Trading started strongly but settled down to a more mixed picture of good High Street and retail park sales but weaker shopping center performance, the company said in the results.

The higher gross profit in the first-half of 2021 of £10.6 million compared with £7.7 million in the same period of the prior year reflected the sales related margin reduction year over year due to clearing excess stock and the benefit of the Government Covid-19 business support schemes. Admin and distribution costs were higher in 2020 than in 2019 primarily due to a £3.1 million additional expenditure relating to the increase in digital sales and a £0.5 million increase due to foreign exchange revaluation.

Loss from operations was £1.8 million in the first half of 2021, compared with a £1.5 million loss in the first half of 2020.

According to Reorg calculations, levered free cash flow including lease repayments has been slightly positive over the past 12 months, amounting to £0.5 million, with cash generation in the second half of 2020 offsetting the £2.2 million cash burn in the first half of 2021.

Excluding repayments of lease liabilities, the group’s free cash flow amounted to positive £22.4 million for the last 12 months ended April 3. Lease repayments for the period were £21.9 million. These leased repayments primarily relate to leased property and, as the group is currently reviewing store viability on an individual basis, may decline in the future.

An overview of the group’s historical financial performance is below:

The majority of the company’s £66.1 million in gross debt is made up of £55.7 million in lease liabilities and £10.4 million outstanding under the £15 million CLBILS loan. On April 3, net debt totaled £51.6 million, cash totaled £14.5 million and the group has a further £3 million available via an on-demand overdraft facility. The £15 million CLBILS loan was drawn down with £4.6 million repaid as of the end of the first half.

The company’s capital structure is below:
Shoe Zone PLC
EBITDA Multiple
(GBP in Millions)
£15M CLBILS Bank Loan 1
£3M Overdraft Facility
Total Debt
Lease Liabilities
Total Lease Liabilities
Total Debt
Less: Cash and Equivalents
Net Debt
Operating Metrics
RCF Commitments
Plus: Cash and Equivalents
Total Liquidity

Reorg EBITDA is Reorg's calculated cash EBITDA is calculated as loss from operations plus depreciation, fixed asset impairment and losses on disposals of PP&E, right of use asset profit on disposals, depreciation and impairment and pension contributions paid.
1. The loan is repayable over 36 monthly payments of £194,000. Loan is subject to an initial interest rate of 1.22% over base increasing to 1.72% over base rate in May 2021.

Shoe Zone is a public limited company headquartered in Leicester. It was founded in 1980 after brothers Michael and Christopher Smith purchased Bensonshoe, which was founded by their grandfather. The company grew through a series of acquisitions.

CEO Anthony Smith and Chairman Charles Smith hold a combined 50.48% of the issued share capital as shown on the company’s website as of Jan. 1, 2021:

Smith became CEO at Shoe Zone in 1997 and was appointed executive chairman in June 2016. In March 2021, Terry Boot replaced Peter Foot as finance director, after just seven months in the role. Boot was most recently finance director and then CEO at The Company of Master Jewellers having been in the footwear industry for 26 years before then. From 1998 to 2016, he was the finance director at Brantano.

--Andrew Ross, Garan Dhillon, Jaishree Kalia
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