Sweeping Downgrades Hit Accent Group

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Weak demand for lifestyle footwear has led to a shock downgrade from Accent Group. Across-the-board downgrades have followed.

-Accent Group’s AGM update included material earnings guidance downgrade
-Weakness in dominant footwear category ongoing
-Sports Direct offers upside, longer term
-Near term, brokers slash targets and downgrade ratings

By Greg Peel

New Zealand-founded Accent Group’s ((AX1)) comprehensive range of brands gives the business a significant presence in the footwear category in Australia and New Zealand.

Morgans points out several of its retail banners are owned by Accent itself (Platypus, Hype, Nude Lucy, Stylerunner) and those ultimately owned by third parties (The Athlete’s Foot, Skechers, Vans) are operated by Accent under long-term distribution agreements.

While footwear represents some 60% exposure for the company, including familiar brands such as Timberland, Doc Martens and Ugg, fashion and fashion accessories are also represented, as is, importantly, Sport.

At its AGM, Accent provided a trading update for the first 20 weeks of FY26 along with downgraded guidance.

Total group-owned sales (including wholesale) were up 3.7%, with retail like-for-like sales down -0.4%. October LFL sales were up 0.4%, implying sales significantly weakened through late August and September from the 0.8% gain in the first seven weeks of FY26, Morgans notes.

This is against a consistent comparable of 3.5% growth in the prior year.

This year’s growth is much softer than consensus had expected, driven by continued challenging retail conditions and ongoing elevated levels of promotional activity.

Accent noted sports-related categories continue to perform well, but lifestyle footwear sales have been soft.

On the bright side, wholesale sales are ahead of the prior year and the forward pipeline remains strong into the second half.

A Bit Stale?

Management flagged lifestyle footwear sales have been soft and below expectations. In contrast, the sports category continued to perform well, particularly in running and performance.

Petra Capital notes lifestyle footwear has higher discretionary characteristics and hence ongoing challenging retail conditions, including a savvy promotionally-driven consumer, are impacting.

Upon reflection, Petra believes the improvement in the first seven weeks of FY26 was more driven by a temporary stimulus boost (interest rate cut) that aligned with EOFY promotions, rather than a sustained product-driven turnaround.

The lifestyle category continues to misfire and drag. As a more discretionary category, the promotional backdrop is impacting. That said, Petra believes the more central issue is the lack of new product that stimulates demand at full price points, coupled with competitive pressures.

This leads to the need to run deeper promotions to clear product.

As at the end of October, Accent’s FY26 year to date gross margin was down -160 basis points on the same period in FY25, driven by ongoing elevated promotional activity.

Sporting Chance

In April, Accent announced it will bring one of the leading sporting goods retailing businesses globally, Sports Direct, to Australian and New Zealand consumers.

Accent has entered a long-term strategic relationship with London-listed Frasers Group plc, a global retailer of sports, premium and luxury brands, to launch and operate the Sports Direct retail business in Australia and New Zealand.

Accent Group’s website boasts:

“Sports Direct Australia is the go-to destination for the world’s leading sports brands, alongside our own exclusive labels built to deliver quality and performance at great value.

“Whether you’re chasing fitness goals, supporting your team, or gearing up for game day, we bring you the gear, expertise, and inspiration to champion the legend in everybody.”

Accent’s FY26 guidance included no intention to open any new non-sports stores (on top of some 420), rather to concentrate on Sports Direct stores, in partnership with Frasers.

The first Sports Direct store opened in Victoria on November 15 and a further three are planned by the end of FY26. The target is to reach 50 stores over the next six years.

Bell Potter sees good longer-term catalysts around Accent’s pivot into the more resilient Sports category with the first Sports Direct store successfully opened.

Bell Potter anticipates the unlocking of a sizable store roll-out opportunity for the banner in Australia, while benefiting from a higher relevance to leading brand partners such as Nike backed by Frasers.

But in the Near Term…

Accent Group’s downgraded earnings guidance is -23% below prior consensus at the midpoint.

The profit warning has triggered a wholesale slashing of earnings forecasts by brokers in the -20-30% range. While the upside offered by Sports Direct is acknowledged, brokers do not see a near-term solution to weakness in footwear.

Jarden sees Accent as an increasingly complicated business that is not seeing its portfolio of brands yielding the benefits of scale and diversification. This is combined with significant execution risk and rising competition in lifestyle.

Jarden nevertheless believes Sports Direct represents a material opportunity, de-risked in part by the Frasers partnership.

The expected recovery in the lifestyle category has not yet occurred, Morgan Stanley notes, and headwinds remain. Recovery timing is uncertain, and risk is skewed to the downside.

To turn more constructive, Morgan Stanley requires evidence of a recovery in lifestyle category footwear and gross profit margin stability. The Sports Direct store rollout offers long term upside, and the broker’s base case assumes success, but near-terms earnings support is minimal.

FY26 guidance assumes an improvement in sales and margins in the second half, which seems difficult to bank on, in Citi’s view.

There’s some evidence of greenshoots with October LFL sales improving to a 0.4% gain, but Citi doesn’t think the market is going to place any weight on this given the magnitude of the earnings downgrades, combined with November (Black Friday, Cyber Monday) and December (Christmas) being more material trading months.

The AGM update signals worsening retail trends and margin pressure, Morgan Stanley notes. FY26 earnings guidance was cut sharply, recovery timing is uncertain, and risk is skewed to the downside.

Sweeping Downgrades

UBS points out Accent’s share price was already down -57% in 2025 to date ahead of the AGM, while the ASX Small Ordinaries was up 14%. This did not stop all five brokers monitored daily by FNArena covering Accent Group downgrading their ratings.

Citi, Bell Potter, UBS and Morgans all downgraded to Hold from Buy or equivalents. Morgan Stanley downgraded to equivalent Sell from Hold (Underweight from Equal-weight).

Slashed earnings forecasts were accompanied by slashed target prices. The consensus target between the five is now $1.07, down from $1.76.

Petra Capital has also downgraded to Hold from Buy, cutting its target to $1.08 from $1.65.

Jarden has retained its existing Neutral rating, albeit with a negative bias. Jarden’s target moved to $1.20 from $1.46.

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