Shares in footwear retailer RCG Corp (RCG) tumbled 27% yesterday after the company surprised the market with its second earnings downgrade in three months.
The shares lost 22.5 cents to close at 60.5 cents, the lowest they have been since October 2014 after RCG cut full-year profit guidance by 11% as 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.
Yesterday’s slump took the shares’ losses since February to more than 57%.
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’s co-chief executive Hilton Brett said trading conditions had been challenging in the last two months, confirming anecdotal reports that discretionary spending had remained lacklustre since 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%, 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% since mid-February and wholesale sales were below expectations.
It is more evidence that consumers are shopping more online and becoming more choosy – the semi luxury OrotonGroup saw its sales weaken in the past few months.
The company said in yesterday’s statement that housing market concerns, subdued wage growth and the pending arrival of Amazon have made investors nervous about the retail sector.
"The board believes that RCG has been caught up in the widespread sell-down of retail stocks over the last few months due to a number of factors," the company said in its update to the ASX on Monday.
It said those factors included declining consumer confidence, weak wage growth, housing market concerns, rising interest rates and the "perceived impact that the market entry of Amazon may have on the Australian retail landscape". It said eCommerce sales had risen more than 65% and the growth continued to accelerate.
