Footasylum (FOOT) – Run a mile from this botched float
Footasylum listed almost a year ago now, and has been a real headache for any IPO holders. Headache is perhaps a little conservative, as the share price is now 85% down from 200p to 30p. The first warning came Feburary, when it announced via RNS that there would be an “Analyst Teach-in”. This is purely my opinion, but anyone who has to “teach” anyone what their business model actually is probably does not have a viable business model. It’s a shop. How hard is that?
Footasylum released their results in June, which did not go down too well. The share price was butchered by over 50% on large volume. When a stock closes down on large volume you know institutions are selling and that this can go on for weeks. Sure enough, there was a small bounce, but anyone long of the stock deserved to be in an asylum as the alarm bells were louder than the garish clothing they sell.
Another trading statement at the start of September showed that revenue was not growing as expected, with market expectations revised strongly downwards. Bizarrely, management believe they can fix this by opening yet more stores, when there are obviously problems given they cannot even generate positive EBITDA. Rents are very cheap at the moment as retail is going through absolute turmoil, so this could eventually pay off in the future, but this costs money and Footasylum are not making any. I would expect them to come back to the market given that revenue projections have been hugely optimistic and wrong, and the relentless dumping of the shares.
The shop itself is ugly (though I admit to only having visited a rather limited sample of one store). I don’t consider myself too old, being under 30, but is this really the fashion now? The clothes are truly awful, and appear to be the company’s unique selling point. Either I’m older than I think, or the offering is really terrible. They are all brands I’ve never heard of, and don’t want to hear of again (Glorious Gangsta. Seriously). What I also found odd is that it is called Footasylum yet only a small portion of the shop was selling footwear. I would expect most of the trainers to be found in JD Sports too, as they sold Adidas, Nike, all the usuals, but oddly Adidas and Nike clothing were not sold in the store. Given that these are the two sportswear titans, to me it doesn’t make much sense.
Recovery unlikely to be a quick sprint
It’s possible that at some point there will be money to be made in Footasylum. Online sales are growing strongly and so this could really be the saviour of the business, but for now I’ll be staying well clear. It’s much better to buy stock when the sun is starting to shine and the share price trending upwards, rather than in the middle of a storm. I notice also that the directors are not hugely stepping in to buy, aside from one £5k buy, and so I won’t be rushing in either.