The Accent Group Ltd (ASX: AX1) share price has kept on rising since its trading update in January. Can the latest acquisition push the Accent share price even higher?
Accent is a consumer business in the retail and distribution of lifestyle footwear, with over 500 stores and 19 websites offering 12 international brands across Australia and New Zealand.
Some notable brands include The Athlete’s Foot, Platypus Shoes, Hype DC and Vans.
AX1 share price
Accent grows its network
Accent has successfully acquired the Glue Store retail business and the wholesale and distribution brands business of Next Athleisure Pty Ltd.
It will own all of Next Athleisure’s exclusive owned vertical brands, including Lulu & Rose, Beyond Her, Article One and Nude Lucy.
The company expects to receive the distribution rights for Superga, le coq sportif, Kappa, K-Way and Sebago.
These products are targeted towards the youth apparel market in Australia and New Zealand.
Signs of improving efficiencies
Both Accet’s gross margins and operating margins have been steadily improving.
This has been mainly driven by the accelerated shift in consumers purchasing footwear online. Digital sales as a % of total retail sales jumped from 20% in FY20 to 22% in HY21.
Accent is aiming to achieve 30% for digital sales.
Are these the right pair of shoes?
Management notes it’s already well progressed to increase Glue Store’s store network, accelerate its digital and virtual offerings and increase the range of footwear in its stores.
When you think about what Accent’s competitive advantage is, it’s essentially the distribution network and customer reach.
So, it makes a lot of sense for Accent to widen its existing distribution network in the youth apparel market.
It’s encouraging to see that Accent is currently free cash flow positive. This grew significantly as it benefited from the pandemic through government subsidies and rent relief.
Whilst free cash flow will likely not be at similar levels to FY20, investors should remember the potential efficiencies to be gained from the growing shift towards digital purchases.
In saying this, retail sales are cyclical in nature, which should be factored in when valuing Accent.
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