The agreement with Frasers Group gives Accent Group a 25 year licence to operate Sports Direct in ANZ. Frasers Group will also increase its holding in Accent Group to 19.6% providing $60 million in funding for the initial phase of the rollout. With a 50 store within six years target, Sports Direct provides a new growth path with additional sourcing and product benefits for the group.

At a time when core footwear banners for Accent Group appear to be reaching maturity and competition is impacting margins, Frasers Group is looking to establish a physical presence via Sport Direct. Sports Direct creates the opportunity for further store growth with category expansion. With weakness in the core from a lower forecast store count and weaker gross margin, we lower our current earnings forecasts for Accent Group. We have increased the probability weighting to a Sports Direct entry to 90%.

Accent Group reported 1H25 EBIT of $81 million, up 11%. The gross margin deterioration of 100bp owing to promotional intensity lead us to lower full year expectations. The nearing maturity in the store opportunities for Platypus and Skechers see us lowering our long term store forecasts by 4.5%. We incorporate an upside case in our valuation for a deal with Frasers Group.

Over the past decade, retail rental growth has been less than sales growth for many ASX-listed retailers. Can this trend continue? In Issue 8 of Price Watch, we analyse floor space supply and demand. We expect retail supply per capita to fall by 0.7% p.a and retail demand to rise by 0.5% p.a. This is a meaningful disconnect placing upward pressure on rents. We expect half the gap to be solved through productivity initiatives by retailers and landlords to work floor space harder and reduce anchor tenant space. The retailers with the highest exposure to the top 30 shopping centres are Accent Group, Premier Retail, City Chic and JB Hi-Fi.