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Footasylum – our warnings prove sage as now tripping up badly

By Steve Moore | Monday 3 September 2018

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from ShareProphets). I have no business relationship with any company whose stock is mentioned in this article.

Footasylum (FOOT) IPO’d on AIM in November at 164p, with CEO Clare Nesbitt stating we “look forward to delivering the significant potential that we see for Footasylum as a quoted business” and “are delighted that our product-led, multi-channel expansion strategy has resonated so strongly with investors”. I though questioned on competition and disposable income challenges, and concluded that the valuation looked too rich. There then followed deviation from the IPO expectations and now a “Trading Statement” update…

“Footasylum, a UK-based fashion retailer focusing on the branded footwear and apparel markets, announces an update on trading performance for the six months ended 25 August 2018… Footasylum expects to report revenue of £98.6 million for the period, an increase of 18.5% compared to the corresponding period in the prior year”. Hmmm, ok – though broker to the company Liberum was looking for a full-year 22% increase (and more than 25% on initiating coverage in January).

“Footasylum expects to report a small adjusted EBITDA loss for the period reflecting a lower gross margin and higher costs from investment in the company's operations”. Hmmm, even a bullshit (who, for example, is paying for store upkeeps – the tooth fairy?) earnings loss… “Store performance during July and August… challenging”. Uh oh…

… With also “some unforeseen delays in the company's new store openings and upsizes” and “a higher amount of clearance activity in stores, the board now expects adjusted EBITDA for the full year to be significantly lower than previous guidance, at less than half of the FY18 adjusted EBITDA of £12.5 million”.

With also a net debt position now forecast for the year-end, this all compares to a market cap - despite the shares having almost halved on the day towards 40p (how’s that “delivering the significant potential that we see for Footasylum as a quoted business” going?!) - of still well above £40 million. It argues “in the longer-term, the board remains confident in the strategy set out at Footasylum's FY18 results, and is encouraged by the progress made to date in strengthening its partnerships with core suppliers and improving its technology and consumer systems”.

I’m certainly not confident and encouraged by the progress made to date, continue to avoid and reiterate this AIM IPO roll-call of shame.

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