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Here’s why the Accent Group share price continues to grow amid nervous retail sentiment

Daryl Mather

Accent Group Ltd (ASX: AX1) runs all of those sneaker stores that your teenage kids like to buy from. At least this is how I was introduced to them. The company is part of the S&P ASX Small Ordinaries index and runs a business made up of both owner-operated stores and franchised stores.

A closer look at Accent Group

Its owner operator stores include brands such as the ubiquitous Platypus, Athletes Foot and Hype DC. The diversity of product offerings allows the company to have several different store brands catering to different market sectors within the same shopping mall, frequently within metres of each other. 

Over the past decade, sales growth compounded at an average 28% and earnings per share at 14.4% demonstrates a company that is very adept at both obtaining revenues and turning that into increased earnings. Accordingly, the Accent Group share price has risen by an average compound rate of 13% across the 10-year period, averaging as high as 21% compound growth over the past 5 years.

Accent’s history shows it has mastered 2 tricks of retail. First, the art of cost effective store rollout and second, the ability to capture the distribution rights for sought after brands, often exclusively. This includes iconic brands like Dr Martens, workwear stalwart CAT, challengers in the sneaker market place like Vans, and running shoes Saucony. 

The company’s store rollout capability is well honed and demonstrates not only the discipline to build profitable stores, 54 in FY19, but also to close less profitable stores, 21 in FY19. This is transferring into the online space also where it  has increased digital sales by an amazing 93% over the year. With an Australian footwear market valued at US$3.2 billion in 2017 by Hexaresearch, this is clearly a valuable skill set and shows that Accent Group still has a lot of runway ahead of them.

What’s the barrier to competition?

Some analysts have harshly judged Accent as not having an economic moat to deter market invaders. I think this is incorrect. The store ambience and layouts, the shopping experiences the company is building and its ability to locate several brands within metres of each other catering to separate market sectors all provide a pretty high wall for any invaders to have to climb. 

Anytime I go into a Platypus store it is clearly humming along. Good music from the in-house DJ desk, digital screens, young people everywhere with store attendants who clearly want to be there and are very service-oriented. Similarly, Athlete’s Foot stores always seem to have patrons and their MyFit 3D is a unique shoe fitting experience.

Foolish takeaway

Accent Group,  under CEO Daniel Agostinelli, appears to be a well managed company that has been able to manufacture sturdy barriers to entry and has the ability to adapt to the desires of the market. It is  continually making headway in what is a difficult retail environment and continues to eke out a greater percentage of the massive Australian market in footwear.

I would buy  Accent Group shares while its price remains under $1.90. I expect it to be able to deliver steady capital growth year on year as well as its present 4.6% dividend which appears very stable.

The post Here’s why the Accent Group share price continues to grow amid nervous retail sentiment appeared first on Motley Fool Australia.

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Motley Fool contributor Daryl Mather has no position in any of the stocks mentioned. The Motley Fool Australia has recommended Accent Group. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

The Motley Fool's purpose is to help the world invest, better. Click here now for your free subscription to Take Stock, The Motley Fool's free investing newsletter. Packed with stock ideas and investing advice, it is essential reading for anyone looking to build and grow their wealth in the years ahead. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson. 2020