Shoe Zone, the budget footwear retailer, has made the difficult decision to furlough thousands of its employees and cancel its final dividend payment in response to the challenges posed by the Covid-19 pandemic. This move has resulted in a significant drop in the company’s shares.
Originally scheduled to be paid on 18 March, the final dividend of 8p per ordinary share was deferred on 17 March due to the ongoing crisis. The company’s board of directors will now seek shareholder approval to completely cancel the dividend at a general meeting in Leicester on 29 April. By doing so, Shoe Zone aims to save £4 million in order to secure its long-term viability.
To ensure the survival of the business during the government-mandated lockdown, Shoe Zone has implemented several measures to preserve its cash reserves. One of these measures is the closure of all 500 of its stores in the UK and Ireland since 23 March, in an effort to limit the spread of the virus. Additionally, the majority of the workforce, approximately 3,500 employees, have been placed on the government-funded furlough scheme, receiving 80% of their regular salary. Currently, only key workers and digital teams are active, while the brand’s online platform is still operational, albeit with minor delays.
The company anticipates a significant impact on its 2020 performance due to the current circumstances and has thus withdrawn its previous guidance. As a further cost-saving measure, Shoe Zone has halted all capital expenditure and is minimizing costs wherever possible. It currently maintains cash balances of £4.7 million and has access to £3 million in undrawn banking facilities. However, failing to cancel the final dividend could jeopardize the company’s financial viability.
While there was a slight recovery in Shoe Zone’s shares on Friday, reaching a mid-morning price of 61p, the cancellation of the dividend and the ongoing uncertainty surrounding the pandemic are expected to have a continued negative impact on the company’s performance in the future.