Half Yearly Report

RNS Number : 6998P

Shoe Zone PLC

10 June 2015

 

10 June 2015

Shoe Zone plc

Interim Results

Shoe Zone plc ("Shoe Zone" or the "Group"), a leading UK specialist value footwear retailer, is pleased to announce its Interim Results for the six months ended 4 April 2015.

Financial Highlights

·      Revenue reduced by 5.7% to £78.2m (2014 H1: £82.9m) reflecting the planned closure of 9 loss making stores and trading conditions towards the end of the period

·      Profit before tax decreased to £2.0m (2014 H1: £2.7m) in line with previous guidance

·      Robust gross product margins of 60.5% (2014 H1: 60.2%)

·      Earnings per share decreased to 3.2p (2014 H1: 3.7p)

·      Strong cash conversion with net cash at 4 April 2015 of £5.9m (5 April 2014: £7.8m)

·      Interim dividend of 3.2 pence per share

Operational Highlights

·      Store portfolio continues to improve with five new openings, four relocations, 18 refits and nine planned closures

·      Full launch on eBay in October 2014 with encouraging results, following a successful trial

·      Strong Amazon performance; now represents 17% of multichannel revenue

·      Significant advances in warehouse efficiency through investment in infrastructure

Anthony Smith, Chief Executive of Shoe Zone plc, said:

"We have made solid progress across the business in the first half and are particularly pleased with the performance in multichannel, where we saw a 30% increase in revenue.  We continue to rationalise our store portfolio, closing loss-making Grade 3 stores and opening more of our larger Grade 1 stores.

"We remain focused on our growth levers: extending and improving our product range to leverage our market leading position in the value sector; driving efficiency in our property portfolio; operational investment in our warehouse facilities; and enhancements to our multi-channel offering.

"Current trading has remained in line with expectations following our April trading update.  The Board continues to look to the future with confidence."

There will be a meeting for analysts at 9:30am on 10 June 2015 at the offices of FTI Consulting, 200 Aldersgate, London, EC1A 4HD.

For further information please call:

Shoe Zone plc	Tel: [phone]
Anthony Smith (CEO)
Charles Smith (COO) Nick Davis (CFO)

Numis Securities Limited (Nominated Adviser & Broker)	Tel: [phone]
Mark Lander/ Oliver Cardigan

FTI Consulting (Financial PR)	Tel: [phone]
Jonathon Brill
Alex Beagley Eleanor Purdon

Chief Executive's Statement

Introduction

Shoe Zone is a leading UK specialist value footwear retailer, offering low price and high quality footwear for the whole family.  The Group operates from a portfolio of 541 stores and employs approximately 4,000 employees across the UK and the Republic of Ireland.  Shoe Zone's online offering (www.shoezone.com), combined with its extensive store portfolio, enables its customers to shop via multiple channels. There has been significant activity across the Group in the first six months of the year and I will now provide an update on our core areas of progress:

Product range development

The product range has continued to evolve with significant improvements to Bags and Sundries.

The Bag ranges for our winter and summer season have been relaunched with a strong focus on value.  The range is now offered in store at the key price points of £7.99, £9.99 and £12.99.  The Sundries and Shoe Care range has been further enhanced by offering wider merchandise options which are still held in a defined space near the point of sale.  We will continue to build upon the success of these growth areas in the second half.

We appointed a new merchandise Director in in April 2015. The changes that have already been made will improve the speed of ranges coming into stores and also enhance range diversity for broader customer appeal.

Property

Since the start of our financial year on 4 October 2014, we have opened five new stores, relocated four stores to our larger format in better locations and refitted 18 stores.  We are now operating in four new locations in Arnold, Bootle, Liverpool and Perth.  We have 13 more stores trading from our Grade 1 format since the year end. We have closed nine loss making stores and will continue to enhance the property portfolio with further store openings, relocations and refits in this financial year.

	As at 4 April 2015	As at 4 October 2014
Grade 1 (large - 400 styles)	216	203
Grade 2 (medium - 350 styles)	177	178
Grade 3 (small - 300 styles)	148	164
TOTAL	541	545

Operational improvements

During the first half there have been significant advances in warehouse efficiency through investment in infrastructure at our Leicester distribution centre.  This, combined with falling fuel costs has had a positive impact on our distribution cost base.  Rent reductions continue to drive store contribution with rents on renewal for the six months falling on average by 28%.  The increase in large format stores has allowed us to continue to control wages well and this, together with rent reductions and the closure of loss making stores, is building a more effective cost base for the future.

Multichannel

Multichannel revenue is up 30% for the period and continues to contribute at a higher rate than our average high street store.  Following a successful trial on eBay, we completed our full launch in October 2014 and this is achieving good results, already accounting for 7% of multichannel revenue.  Amazon continues to grow and now represents 17% of multichannel revenue.  Our email club has grown 14% over the first half.  Customer returns are well managed and have fallen to 10.5% of sales from 12.9%.  The website now has a fully responsive checkout and the business continues to invest in multichannel development.

Financial Summary

In the six months to 4 April 2015, the Company generated revenues of £78.2m (2014 H1: 82.9m) and profit before tax of £2.0m (2014 H1: £2.7m).  The warm weather conditions had a material impact on autumn/winter trading which slowed revenues towards the end of the first half.  While footwear sales volumes increased, the average price was down due to the different product mix sold, e.g. lower priced ladies ankle boots were favoured over long leg boots. In addition, the wider market continues to experience deflation in clothing and footwear.  Despite these issues, the inventory has been well managed, product gross margins remain robust at 60.5% (2014 H1: 60.2%) and cash generation continues to be strong.  As at 4 April 2015, Shoe Zone had net cash of £5.9m with no bank debt.  Management continues to monitor costs and these remain tightly controlled.

Dividend

The Board is declaring an interim dividend of 3.2 pence per share, (2014 H1: no dividend due to recent IPO).  This will be paid on 19 August 2015 to shareholders on the register 23 July 2015.

Current trading

In the 9 weeks to 6 June 2015 since the half-year end, and following the trading update on 21 April 2015, trading has been in line with expectations.  Online performance remains strong and continues to be ahead of market growth projections.

The Board of Directors would like to thank all of our Shoe Zone teams and business partners for all their hard work in the first half of the financial year.

A E P Smith                                                     

Chief Executive Officer                           

Date: 10 June 2015

 

 

Unaudited consolidated income statement

	Note		26 weeks ended 4 April    2015		26 weeks ended 5 April    2014		52 weeks ended 4 October 2014
			£'000		£'000		£'000
Revenue	3		78,171		82,914		172,861
Cost of sales			(67,730)		(72,019)		(144,303)
Gross profit			10,441		10,895		28,558
Administration expenses			(5,920)		(5,509)		(11,813)
IPO costs			-		-		(936)
Distribution costs			(2,448)		(2,605)		(5,240)
Profit from operations			2,073		2,781		10,569
Finance income			22		20		33
Finance expense			(95)		(74)		(103)
Profit before taxation			2,000		2,727		10,499
Taxation	5		(414)		(901)		(2,459)
Profit attributable to equity holders of the parent	7		1,586		1,826		8,040

Earnings per share - basic and diluted

7

3.17p

3.65p

16.08p

Unaudited consolidated statement of total comprehensive income

		26 weeks ended 4    April 2015		26 weeks ended 5 April 2014		52 weeks ended 4 October 2014
		£'000		£'000		£'000
Profit for the period		1,586		1,826		8,040
Other comprehensive income/(expense)
Actuarial (loss)/gain on defined benefit pension scheme		(1,762)		10		(2,371)
Movement in deferred tax on pension schemes		352		(2)		474
Cash flow hedges
Fair value movements in other comprehensive income		241		-		-
Tax on cash flow hedges		(49)		-		-
Other comprehensive (expense)/income for the period		(1,218)		8		(1,897)
Total comprehensive income for the period
attributable to equity holders of the parent		368		1,834		6,143

 

 

Unaudited consolidated statement of financial position

 

	Notes	26 weeks        ended 4 April 2015		26 weeks   ended 5 April 2014		52 weeks    ended 4 October 2014
		£'000		£'000		£'000
Assets
Non-current assets
Property, plant and equipment		20,286		22,835		21,233
Total non-current assets		20,286		22,835		21,233
Current assets
Inventories		28,416		26,515		29,181
Trade and other receivables		6,566		6,932		8,377
Derivative financial assets		1,660		-		741
Cash and cash equivalents		5,897		7,829		9,114
Total current assets		42,539		41,276		47,413
Total assets		62,825		64,111		68,646
Current liabilities
Trade and other payables		(20,775)		(19,929)		(25,920)
Loan and borrowings	6	-		(1,919)		-
Provisions for liabilities and charges		(456)		(727)		(959)
Derivative financial liabilities	4	-		(987)		-
Corporation tax liability		(427)		(660)		(518)
Total current liabilities		(21,658)		(24,222)		(27,397)
Non-current liabilities
Trade and other payables		(3,414)		(4,161)		(3,766)
Provisions for liabilities and charges		(806)		(500)		(470)
Employee benefit liability		(6,472)		(2,485)		(4,766)
Deferred tax liability		(176)		(321)		(516)
Total non-current liabilities		(10,868)		(7,467)		(9,518)
Total liabilities		(32,526)		(31,689)		(36,915)
Net assets		30,299		32,422		31,731
Equity attributable to equity holders of the company
Called up share capital		500		500		500
Share premium reserve		2,662		2,662		2,662
Cash flow hedge reserve		192		-		-
Retained earnings		26,945		29,260		28,569
Total equity and reserves		30,299		32,422		31,731

 

 

Unaudited consolidated statement of changes in equity

	Share capital		Share premium		Cash flow hedge reserve		Retained earnings		Total
	£'000		£'000		£'000		£'000		£'000
At 5 October 2013	500		2,662		-		29,886		33,048
Profit for the period	-		-		-		1,826		1,826
Other comprehensive expense	-		-		-		8		8
Total comprehensive expense for the period	-		-		-		1,834		1,834
Distribution prior to group reorganisation	-		-		-		(2,460)		(2,460)
Total contributions by and distributions to owners	-		-		-		(2,460)		(2,460)
At 5 April 2014	500		2,662		-		29,260		32,422
At 5 October 2013	500		2,662		-		29,886		33,048
Profit for the period	-		-		-		8,040		8,040
Other comprehensive expense	-		-		-		(1,897)		(1,897)
Total comprehensive expense for the period	-		-		-		6,143		6,143
Distribution prior to group reorganisation	-		-		-		(2,458)		(2,458)
Dividends paid prior to group reorganisation	-		-		-		(5,002)		(5,002)
Total contributions by and distributions to owners	-		-		-		(7,460)		(7,460)
At 4 October 2014	500		2,662		-		28,569		31,731
At 4 October 2014	500		2,662		-		28,569		31,731
Profit for the period	-		-		-		1,586		1,586
Other comprehensive income	-		-		-		(1,410)		(1,410)
Fair value movements in other comprehensive Income	-		-		241		-		241
Tax on cash flow hedges	-		-		(49)		-		-
Total comprehensive income for the period	-		-		192		176		368
Non-equity dividends	-		-		-		(1,800)		(1,800)
Total contributions by and distributions to owners	-		-		-		(1,800)		(1,800)
At 4 April 2015	500		2,662		192		26,945		30,299

Unaudited consolidated statement of cash flows

		26 weeks        ended 4 April 2015		26 weeks        ended 5 April 2014		52 weeks        ended 4 October 2014
		£'000		£'000		£'000
Operating activities
Profit after taxation		1,586		1,826		8,040
Corporation tax		414		901		2,459
Finance income		(22)		(20)		(33)
Finance expense		95		74		103
Pension contributions paid		(150)		(300)		(425)
Depreciation of property, plant and equipment		1,953		2,265		4,527
Loss on disposal of property, plant and equipment		26		62		108
		3,902		4,808		14,779
Decrease in trade and other receivables		1,789		1,436		329
Decrease in inventories		765		3,444		778
Decrease in trade and other payables		(6,257)		(4,069)		(185)
Decrease in provisions		(167)		(403)		(200)
		(3,870)		408		722
Cash generated from operations		32		5,217		15,501
Income taxes paid		(542)		(1,481)		(2,512)
Net cash flows from operating activities		(510)		3,736		12,989
Investing activities
Purchase of property, plant and equipment		(1,035)		(973)		(2,008)
Sale of property, plant and equipment		106		725		703
Interest received		22		20		33
Net cash used in investing activities		(907)		(228)		(1,272)
Financing activities
Distribution prior to group reorganisation		-		(2,458)		(2,458)
Dividends paid prior to group reorganisation		-		-		(5,002)
Dividends paid		(1,800)		-		-
Interest paid		-		(23)		(27)
Movement of loans		-		251		(1,668)
Net cash used in financing activities		(1,800)		(2,230)		(9,155)
Net (decrease)/increase in cash and cash equivalents		(3,217)		1,277		2,562
Cash and cash equivalents at beginning of period		9,114		6,552		6,552
Cash and cash equivalents at end of period		5,897		7,829		9,114

Notes to the financial statements for the 26 weeks ended 4 April 2015

1.    Basis of preparation

The consolidated interim financial statements of the Group for the 26 weeks ended 4 April 2015, which are unaudited, have been prepared in accordance with the same accounting policies, presentation and methods of computation  followed in the condensed set of financial statements as applied in the group's latest annual audited financial statements. A copy of those accounts has been delivered to the Registrar of Companies.

The financial information for the 52 weeks ended 4 October 2014, contained in this interim report, does not constitute the full statutory accounts for that period. The Independent Auditors' Report on the Annual Report and Financial Statements for 2014 was unqualified, did not draw attention to any matters by way of emphasis, and did not contain a statement under 498(2) or 498(3) of the Companies Act 2006.

The consolidated interim financial statements have neither been audited nor reviewed pursuant to guidance issued by the Auditing Practices Board.

The condensed consolidated interim financial statements have been prepared on a going concern basis and under the historical cost convention, as modified by the revaluation of derivative financial instruments to fair value.

The condensed consolidated interim financial statements are presented in sterling and have been rounded to the nearest thousand (£'000).

The preparation of financial information in conformity with IFRS requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Although these estimates are based on management's best knowledge of the amount, event or actions, actual events ultimately may differ from those estimates.

2.    Accounting policies

In preparing these interim financial statements, the significant judgements made by management in applying the group's accounting policies and the key sources of estimation uncertainty were the same as those applied to the consolidated financial statements reported in latest annual audited financial statements for the 52 weeks ended 4 October 2014 with the exception of derivative financial instruments that are noted below.

The Group uses derivative financial instruments such as forward foreign exchange contracts to hedge its risks associated with foreign currency fluctuations. Such derivative financial instruments are initially measured at fair value and subsequently remeasured at fair value. The fair value of forward foreign exchange contracts is calculated by reference to current forward exchange rates for contracts with similar maturity profiles.

The effective portion of changes in the fair value of derivatives that are designated and qualify as cash flow hedges is recognised in other comprehensive income. The gain or loss relating to the ineffective portion is recognised immediately in cost of sales in the income statement.

Amounts accumulated in equity are reclassified to cost of sales in the income statement in the periods when the hedged item affects profit or loss, when the hedged transaction occurs.

When a hedging instrument expires or is sold, or when a hedge no longer meets the criteria for hedge accounting, any cumulative gain or loss previously recognised in equity is retained in equity and is recognised when the forecast transaction is ultimately recognised in cost of sales in the income statement. When a forecast transaction is no longer expected to occur, the cumulative gain or loss that was reported in equity is immediately transferred to the income statement.

The Group documents at the inception of the transaction the relationship between hedging instruments and hedged items, as well as its risk management objectives and strategy for undertaking various hedging transactions. The Group also documents its assessment, both at hedge inception and on an ongoing basis, of whether the derivatives that are used in hedging transactions are highly effective in offsetting changes in fair values or cash flows of hedged items.

3.    Segmental information

The group complies with IFRS 8 'Operating Segments', which determines and presents operating segments based on information provided to the chief operating decision-maker. The chief operating decision maker has been identified as the management team including the Chief Executive Officer, Chief Operating Officer and Chief Financial Officer. The Board considers that each store is an operating segment but there is only one reporting segment as the stores qualify for aggregation, as defined under IFRS 8.

	4 April 2015		5 April 2014		4  October  2014
	£'000		£'000		£'000
External revenue by location of customers:
United Kingdom	75,768		80,246		167,146
Republic of Ireland	2,403		2,668		5,715
	78,171		82,914		172,861

There are no customers with turnover in excess of 10% or more of total turnover

	4 April 2015		5 April 2014		4  October  2014
	£'000		£'000		£'000
Non-current assets by location:
United Kingdom	20,286		22,835		21,233

Non-current assets held in the Republic of Ireland are not disclosed on the grounds of materiality.

4.    Derivative financial instruments

At the balance sheet date, details of the forward foreign exchange contracts that the group has committed to are as follows:

	4 April 2015		5 April 2014		4 October 2014
	£'000		£'000		£'000
Fair value of asset/(liability) recognised	1,660		(987)		741

5.    Taxation

The taxation charge for the 26 weeks ended 4 April 2015 is based on the estimated effective tax rate for the full year of 20.7%. (2014: 23.4%)

6.    Loans and borrowings

	4 April 2015		5 April 2014		4 October 2014
	£'000		£'000		£'000
Current
Related party loans	-		1,919		-
Total loans and borrowings	-		1,919		-

7.    Earnings per share

	4 April 2015		5 April 2014		4 October 2014
	£'000		£'000		£'000
Profit for the period and earnings used in basic and diluted earnings per share	1,586		1,826		8,040

Earnings per share - basic and diluted

3.17p

3.65p

16.08p

 

END

 

 

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