The ASX dividend stock Accent Group Ltd (ASX: AX1) has experienced a significant decline, dropping 62% since December 2024. This downturn presents a potentially opportune moment for contrarian investors to consider purchasing shares in the ASX retail sector.
Accent Group Ltd owns a variety of shoe retail brands in Australia, including The Athlete’s Foot, Stylerunner, Nude Lucy, and Platypus. The company also serves as a retailer for several global brands such as Hoka, Ugg, Skechers, Vans, Timberland, Merrell, and Herschel.
Understanding the Current Market Conditions
The business is navigating challenging retail conditions. A recent survey conducted by UBS of approximately 1,000 Australian adults indicates that spending intentions for lifestyle footwear are likely to impact Accent negatively. This aligns with the broader weakness observed in the footwear subsector of retail, explaining the market’s and analysts’ tempered expectations for the company’s earnings compared to a year ago.
Despite expectations that Accent’s net profit could drop to $45 million in FY26, UBS forecasts suggest that the ASX dividend stock may pay an annual dividend per share of 5 cents in FY26.
This projection implies a grossed-up dividend yield of 7.6%, factoring in franking credits. More importantly, the dividend per share is expected to rise in the following years, reaching 6 cents in FY27 and 8 cents in FY28. By FY28, the company could offer investors a grossed-up dividend yield of 12%, based on the current valuation, according to UBS’ estimates.
Investment Considerations and Future Prospects
Several factors suggest that now might be a favorable time to invest in Accent Group Ltd. Notably, Frasers has increased its stake in Accent to 21.32%, signaling confidence in the company’s future and perceived value, even in the absence of a future takeover offer.
Additionally, the rollout of Sports Direct Australia stores, in collaboration with Frasers, requires substantial initial investment but holds the potential to unlock significant earnings. This expansion will leverage Frasers’ brands, including Everlast, Karrimor, Slazenger, and Lonsdale.
Can Earnings Rebound?
The critical question for investors is whether Accent’s earnings can rebound in FY27 and beyond. The stock appears undervalued if it can achieve even a modest recovery. The company’s strategic initiatives and market positioning will play a crucial role in determining its financial trajectory.
Broader Implications and Market Analysis
The announcement comes as the retail sector grapples with evolving consumer behaviors and economic pressures. Accent Group Ltd’s performance will be closely watched as an indicator of broader trends within the footwear retail market.
According to industry experts, the company’s ability to adapt to changing consumer preferences and effectively manage its brand portfolio will be pivotal. Historical parallels suggest that companies capable of navigating downturns with strategic investments often emerge stronger, potentially offering substantial returns to investors.
“The key to deciding Accent’s return will be whether its earnings can rebound in FY27 and onwards. It looks cheap if it can just rebound modestly.”
As investors consider their options, Accent Group Ltd’s current valuation and future growth prospects present a compelling case for those willing to embrace calculated risks.
In conclusion, while challenges remain, the potential for dividend growth and strategic expansion positions Accent Group Ltd as an intriguing opportunity within the ASX dividend stock landscape. Investors will be keenly observing the company’s next moves and market responses.
