Accent's Competitive Advantages Position It Well for a Cyclical Upturn

In contrast to many of its brick-and-mortar retailing peers, we think Accent can keep rolling out stores at an above-population-growth pace over the medium term. Although Accent’s store network has expanded rapidly, more than doubling in the five years to fiscal 2023, we don’t see evidence of deteriorating store economics. Accent is disciplined in its approach to new stores, targeting an aftertax return on investment of at least 20%, significantly above our 10.4% weighted average cost of capital, or WACC, assumption. We think Accent’s rollout will be driven by monobranded stores under its exclusive distribution agreements with trendy labels such as Hoka, and its vertically owned banners Nude Lucy and Stylerunner. New stores will likely be in outer metro and regional areas. While these stores are typically lower turnover, lower rent means that margins are comparable with metro locations. As the store network expands, sales should increasingly shift away from wholesale and toward the higher margin, albeit more capital-intensive, retail channel. Channel mix shift toward retail should see a modest uplift in group margins, to around 11% by the end of our explicit forecast period from 9.8% in fiscal 2023.