Why is the Accent share price sinking 7% today?

A man holds his head in his hands, despairing at the bad result he's reading on his computer.

A man holds his head in his hands, despairing at the bad result he's reading on his computer.The Accent Group Ltd (ASX: AX1) share price is on the slide on Friday morning.

At the time of writing, the footwear retailer’s shares are down 7% to $1.41.

Why is the Accent share price sinking?

Investors have been selling down the Accent share price on Friday following the release of a trading update.

According to the release, the retailer is expecting to report earnings before interest and tax (EBIT) in the range of $61 million to $63 million. This will be a significant reduction on the EBIT of $124.9 million that it reported in FY 2021.

It is also short of Bell Potter’s EBIT estimate of $70.6 million for FY 2022.

Though, it is worth noting that Accent’s FY 2022’s EBIT includes approximately $7.6 million of one-off, non-cash charges.

These charges comprise the write-down of PIVOT store fit-out costs of $5.1 million and around $2.5 million of impairment charges relating to store lease assets in a small number of stores where customer traffic levels have still not recovered.

So, when adjusting for these one-offs, Accent’s result will be broadly in line with Bell Potter’s estimate.

Reasonable start to FY 2023

The release also reveals that Accent has started FY 2023 in a reasonably positive fashion thanks to strong deliveries of new products.

However, while the company has returned to like for like sales growth for the first three weeks of FY 2023, the comparable period was disrupted by store closures and COVID restrictions. So, beating those numbers was not a challenging feat.

The company also revealed that the execution of its growth plan and key initiatives remains on track. Strong momentum is continuing in Glue and Stylerunner, and the new stores which opened across all banners are performing well, which it believes provides a growth platform for the future.

Management commentary

Accent’s CEO, Daniel Agostinelli, commented:

The disruption experienced in FY22 has been well reported. Sales across May and June continued to be subdued compared to expectations as we continued our focus on driving full price full margin sales. Pleasingly, gross margin rate was ahead of the prior year and since the back end of June we are now starting to experience more normal undisrupted trading conditions across most of the store network.

The first three weeks of FY23 have seen a return to strong deliveries of new product and a positive customer response. Like-for-like sales for this period have been positive albeit against restrictions and store closures in July last year, gross margin rate has also tracked well ahead of the prior year.

The post Why is the Accent share price sinking 7% today? appeared first on The Motley Fool Australia.

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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 Scott Phillips.

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