AX1: Footwear Retailer - The AUD Did the Heavy Lifting
AX1: Footwear Retailer - The AUD Did the Heavy Lifting
In a Nutshell
Executive Summary
In a Nutshell
Accent Group operates roughly 900 retail stores across Australia and New Zealand under brands including Hype DC, Platypus, Skechers, and the newly launched Sports Direct. At A$1.17 vs a fair value of A$1.40, the stock trades 20% below our estimate. The key driver is straightforward: the Australian dollar has already recovered from its 2025 lows, and that mechanical tailwind to gross margins has not yet fully shown up in reported earnings.
Investor Profiles
| Profile | Rating | Rationale |
|---|---|---|
| Income | ★★★★☆ | AX1 pays a fully franked dividend, with FY26E DPS of $0.070 rising to $0.082 in FY27E — a 6.0% grossed-up yield at the current price. The 70% payout ratio is supported by free cash flow, and the franking credit makes the effective yield meaningfully higher for Australian taxpayers. Dividend growth is modest but consistent, making this a reasonable income holding. |
| Value | ★★★★☆ | At 3.9x post-AASB 16 EBITDA, AX1 trades at roughly half the multiple of comparable ASX specialty retailers. The 20% discount to our $1.40 fair value is driven by a cyclical earnings trough, not structural impairment. The catalyst for re-rating is visible: gross margin recovery as the AUD reprices through the hedging book into FY27 results. |
| Growth | ★★☆☆☆ | Revenue growth is forecast at 5.1% in FY26E and 5.5% in FY27E, broadly in line with nominal GDP. EPS growth of 27% in FY27E is real but driven by margin recovery from a trough, not structural expansion. AX1 is not a growth stock — the long-term revenue CAGR of 3.4% reflects a mature domestic network with limited new market opportunity. |
| Quality | ★★★☆☆ | ROIC improves from 9% in FY26E to 12.5% in FY27E, comfortably above the 9.8% cost of capital once margins normalise. The competitive moat is narrow but real — Skechers exclusivity runs to 2035 and anchors roughly $200 million in revenue. Management credibility is mixed: TAF reacquisitions have created value, but the MySale acquisition and closure within six months raised legitimate questions about capital allocation discipline. |
| Thematic | ★★☆☆☆ | The athleisure and performance footwear tailwind (HOKA up 9.4% in wholesale) provides a genuine category-level tailwind. The Sports Direct launch addresses an unoccupied mass-market sports format in ANZ. However, the structural risk from brand principals expanding direct-to-consumer is real and growing — Nike, adidas, and HOKA are all investing in owned retail, which is a slow-moving but genuine headwind to AX1's wholesale channel. |
AX1 is best suited to income and value investors who can look through a trough earnings year. The combination of a fully franked ~6% grossed-up yield and a 20% discount to fair value makes the stock attractive on a risk-adjusted basis — provided the investor accepts that the Sports Direct rollout is unproven and that the thesis resolves primarily through currency and margin normalisation rather than top-line acceleration.
Executive Summary
Accent Group is Australia and New Zealand's largest multi-brand footwear retailer, distributing 12 exclusive international brands — including Skechers, HOKA, and Dr. Martens — through approximately 900 owned stores and a growing wholesale network. Revenue is split roughly 88% retail and 10% wholesale, with thin pre-lease margins of 6–7% that leave earnings highly sensitive to currency movements and promotional activity.
The first half of FY26 was a trough. Gross margins compressed to 52.6% — down from 55.5% in FY25 — as the Australian dollar's decline to decade lows in 2025 repriced the cost of imported inventory. The closure of the Glue fashion brand and the launch of Sports Direct added restructuring charges and start-up losses. Underlying like-for-like sales, however, accelerated from negative territory in the first quarter to positive in the second, and management guided for continued improvement into the second half.
The investment case rests on a single observable fact: the AUD has already recovered from roughly 0.62 to 0.70. That move reprices AX1's USD cost base with a three-to-six month hedge lag, meaning the gross margin benefit flows through into FY27 reported results whether the business does anything differently or not. The Skechers exclusivity agreement, locked until 2035, provides a durable earnings floor. Sports Direct represents a genuine option that the market appears to value at zero.
At A$1.17 vs fair value of A$1.40, the stock is 20% undervalued.
Results & Outlook
What happened?
First-half FY26 revenue grew 5.3% to $817 million, but gross margin fell 240 basis points to 52.6% as the weak AUD lifted the cost of imported inventory. Management stripped out loss-making Glue stores and absorbed Sports Direct start-up costs, producing statutory EBIT of $56.5 million against $72.7 million on a continuing-operations basis. The dividend held at $0.065 per share, and the balance sheet remained conservative at 0.35x net debt to EBITDA.
| Metric | FY24A | FY25A | FY26E | FY27E |
|---|---|---|---|---|
| Revenue ($M) | 1,454 | 1,476 | 1,552 | 1,637 |
| EBITDA ($M, pre-lease) | 115 | 115 | 112 | 130 |
| EBIT margin (%) | 6.4 | 6.3 | 5.7 | 6.5 |
| EPS (cents) | — | — | 10.0 | 12.6 |
| DPS (cents, fully franked) | 6.5 | 6.5 | 7.0 | 8.2 |
| Gross margin (%) | 56.4 | 55.5 | 53.5 | 54.5 |
What's next?
The recovery thesis has a built-in timer. AX1's forward hedging book was placed at an average rate of approximately US$0.666, meaning the full benefit of the AUD's move back toward US$0.70 reprices into reported gross margins progressively through the second half of FY26 and more fully in FY27. Management guided second-half FY26 EBIT of $30–35 million — lower than the first half due to seasonality, but with improving like-for-like sales momentum.
The August 2026 full-year result is the key validation event. A second-half gross margin of 53.5% or above would confirm the currency recovery is flowing through as expected. The other variable is Sports Direct: management described early trade as "pleasing" but has not disclosed per-store revenue. Any quantified data from that format at the full-year result would allow investors to size the option for the first time.
Valuation & Risks
| Metric | Value |
|---|---|
| Fair Value | A$1.40 |
| Current Price | A$1.17 |
| Upside to Fair Value | +20% |
| Bear Case | A$1.05 (25% probability) |
| Bull Case | A$1.92 (15% probability) |
| FY27E Grossed-Up Dividend Yield | ~6.0% at current price |
What could go wrong?
The single biggest risk is that gross margin compression is not cyclical but structural. If Nike, adidas, and HOKA accelerate their own Australian retail networks, AX1 loses both wholesale revenue and the pricing leverage that supports its margins. This scenario would compress the terminal EBIT margin from our 6.7% assumption toward 5.5%, reducing fair value by roughly $0.28 per share — and potentially triggering a de-rating of the earnings multiple simultaneously.
A secondary risk is Sports Direct. The entire ANZ rollout rests on a single store and management's relationship with Frasers Group. The MySale acquisition — bought and closed within six months of the Frasers deal — is a live reminder that new-format enthusiasm can destroy capital quickly. If Sports Direct stalls at five to ten unprofitable stores rather than scaling toward fifty, the ongoing losses would weigh on group margins without any of the long-term strategic payoff.
Neither risk is the base case, but together they explain why the market is pricing AX1 at a 50% discount to its specialty retail peers — and why the 20% gap to our fair value may take patience to close.