Interim Results

RNS Number : 6072Z

Shoe Zone PLC

21 May 2019

 

21 May 2019

Shoe Zone plc

Interim Results

Shoe Zone plc ("Shoe Zone", the "Company" or the "Group") the leading UK value footwear retailer, is pleased to announce its Interim Results for the six months to 30 March 2019.

Financial Highlights

·      Revenue of £73.0m (2018 H1: £73.7m)

·      Strong product gross margins at 62.0% (2018 H1: 60.6%)

·      Statutory Profit before tax of £1.0m (2018 H1: £1.0m)

·      Net cash of £3.3m (2018 H1: £5.9m)

·      Statutory earnings per share of 1.65p (2018 H1: 1.70p)

·      Interim dividend maintained at 3.5p per share (2018 H1: 3.5p per share)

Operational Highlights

·      Rent on renewals fell on average by 18.5%, equivalent to a full year saving of £334k

·      Rent as a percentage of turnover remained static at 11.9% (2018 H1: 12.0%)

·      Operating from 26 Big Box locations at period end contributing £5.5m revenue in H1 and £0.4m of cash contribution

·      Will be operating from 33 Big Box stores at end of May, on track to meet targeted 45 by the end of 2019

·      Trials initiated for new Hybrid store format

·      Digital sales increased by 4.9% to £5.0m (2018 H1: £4.8m) achieving profit contribution of £1.5m (2018 H1: £1.2m)

Nick Davis, Chief Executive of Shoe Zone plc, said:

"The first half of our financial year has been positive for the Group, trading in line with management's expectations and achieving profitable revenue growth in our two key growth areas of Digital and Big Box.

Our ongoing strategic focus continues to be on the Big Box roll out with a target of 45 stores by the end of December 2019. This is progressing to plan and we will be operating from 33 Big Box stores by the end of May.

Additionally, our refreshed digital strategy has also generated profitable growth, laying the foundation for a positive outlook for the rest of the year. This good performance also reflects our close management of costs and ability to maintain appealing key price-points and multi-buy offers for our customers. Additionally, we have experienced lower administration costs due to careful control of property costs and beneficial reduction in foreign exchange.

Trading momentum has continued into the second half, in line with market expectations. With our growth strategy in place, we believe we are favourably insulated against many of the structural sector issues and the Board continues to look to the future with confidence."

There will be a presentation for analysts at the offices of FTI Consulting, 200 Aldersgate, London, EC1A 4HD, at 9:00am on 21 May 2019.

The information communicated in this announcement contains inside information for the purposes of Article 7 of the Market Abuse Regulation (EU) No. 596/2014. Upon the publication of this announcement via regulatory news service this inside information is now considered to be in the public domain.

For further information, please call:

Shoe Zone plc Nick Davis (CEO) Jonathan Fearn (CFO)	Tel: via FTI Consulting
Finncap (Nominated Advisor and Broker) Matt Goode (Corporate Finance) Carl Homes (Corporate Finance) Hannah Boros (Corporate Finance) Alice Lane (ECM)	Tel: [phone]
FTI Consulting (Financial PR) Jonathon Brill Alex Beagley Eleanor Purdon Alice Newlyn	Tel: [phone]

Chief Executive's Statement

Introduction

Shoe Zone is the leading UK value footwear retailer, offering low price and high-quality footwear for the whole family. The Group operates from a portfolio of around 500 stores and employs approximately 3,500 employees across the UK and the Republic of Ireland. Shoe Zone's online offering, combined with its extensive store portfolio, enables it to provide a truly multi-channel shopping experience to its customers.

Financial Summary

In the six months to 30 March 2019, the Company generated revenues of £73.0m (2018 H1: £73.7m) and profit before tax of £1.0m (2018 H1: £1.0m). This performance reflects the focus on our strategy of growth through the roll out of the Big Box format stores, Operational Excellence and Digital.

Cash generation continues to be a focus and the Group had net cash of £3.3m (2018 H1: £5.9m) at 30 March 2019 with no bank debt. The adverse variance to last year is due to increased capital expenditure, the £4m special dividend paid in 2019 and £1.2m of freehold disposal proceeds during 2018.

Management continues to monitor all costs closely and these remain tightly controlled.

Dividend

The Board is declaring an interim dividend of 3.5 pence per share (2018 H1: 3.5p per share). This will be paid on 14 August 2019 to shareholders on the register on 19 July 2019. The shares will go ex-dividend on 18 July 2019.

Growth through Big Box

The roll out of the Big Box format continues to deliver exciting growth opportunities for Shoe Zone. The number of operational stores has increased by seven to 26 at 30 March 2019 with a very strong pipeline through the remainder of 2019 and beyond. We are confident that we will achieve our target of 20 new openings during the current financial year. 

Big Box stores generated £5.5m revenue and £0.4m cash contribution in the 26 weeks representing 7.6% of total turnover and 3.5% of total cash contribution. This compares to 4.4% of total revenue and 2.3% of cash contribution for the full year 2017/18.

During the period we also continued the development of our own label premium brands, Lilley and Skinner and Comfy Steps. These will form part of the Spring Summer season with 23 lines and 19,000 pairs available in store and online. Initial performance of these lines at the commencement of the season has proved positive.

In addition to the Big Box formats we are also trialling a 'Hybrid' concept in more affluent demographic areas which encapsulates the look and feel of a Big Box store in a High Street or Shopping Centre environment. The stores sell all the Shoe Zone range and Big Box brands where the additional brand presence in the locality does not conflict with other retailers. This trial is still in its infancy but initial results are encouraging.

Growth through Digital

Digital revenue has grown by 4.9% to £5.0m (2018 H1: £4.8m) and profit contribution has grown by 19.9% to £1.5m (2018 H1: £1.2m), comparable revenue growth of 8.3%.

We continue to focus on the growth of our email database and during the 26 weeks achieved growth of over 250k new customers with 92% of new sign ups as a result of contact in store. The total number of active users in the database is now 501,000. The growth in our database, and a 42.3% rise in our targeted email promotions, has meant that we have been able to increase the impact of our email promotions to deliver a 13.8% increase in email revenue.

The range of products we sell exclusively online has grown by 185% since October 2018 and associated revenue delivered for the period has risen by 150% year on year. New product ranges such as Ruby Shoo and Rocket Dog have been successfully introduced and we anticipate that this broadening of the Digital offering will continue to accelerate with our Digital shoe buyer now on-board. 

Growth through Operational Excellence

Product

We remain committed to offering our customers the best value possible and have maintained key price points for our Core Value lines. We have increased the number of lines offering 'Multi-Buy' deals (e.g. '2 for £20') which alongside on-going range improvements has increased average transaction value by 4.82% during the year to £13.91.

We have continued to increase our direct sourcing and as a result, footwear orders placed directly with overseas factories increased to 87.6% (2018 FY: 87.1%) of total footwear orders. Working closely with manufacturers has helped grow gross product margins as well as improving communication and control across the supply chain. As a result, product gross margin performance improved by 1.4 percentage points in the period to 62.0% (2018 H1: 60.6%).

Property

We ended the period operating from 495 stores having opened nine, all of which were Big Box format, and closed six.

The core estate continues to be invested in and refreshed. Total capital spend of £3.2m included the nine Big Box openings, one relocation, 12 full refits and the continued rebranding of the remaining estate.

Rents on renewal fell by 18.5%, equivalent to a full year saving of £334k. Total rents remain tightly controlled at 11.9% of turnover and the average outstanding lease length on the portfolio has reduced to 2.0 years (2018 FY: 2.1 years).

Current trading and outlook

Trading in the first half of the year was in line with management's expectations and this has continued into the second half. The progress being made through the current growth strategy, including management of the cost base and particularly the property portfolio, coupled with the fundamental strengths of the business model provides the Board with confidence that Shoe Zone is insulated against many of the structural issues faced by other retailers.  The Board would like to thank all of Shoe Zone's teams and business partners for their hard work in the first half of the financial year.

Unaudited consolidated income statement

	Note		26 weeks ended 30 March 2019		26 weeks ended 31 March 2018		52 weeks ended 29 September 2018
			£'000		£'000		£'000
Revenue	2		72,995		73,672		160,615
Cost of sales			(63,453)		(63,634)		(130,086)
Gross profit			9,542		10,038		30,529
Administration expenses			(5,508)		(6,067)		(13,070)
Distribution costs			(2,987)		(2,928)		(6,048)
Profit from operations			1,047		1,043		11,411
Finance income			56		7		31
Finance expense			(87)		(95)		(187)
Profit before taxation			1,016		955		11,255
Taxation	4		(193)		(104)		(1,738)
Profit attributable to equity holders of the parent	5		823		851		9,517

Earnings per share - basic and diluted

5

1.65p

1.70p

19.03p

Unaudited consolidated statement of total comprehensive income

		26 weeks ended 30 March 2019		26 weeks ended 31 March 2018		52 weeks ended 29 September 2018
		£'000		£'000		£'000
Profit for the period		823		851		9,517
Items that will not be reclassified subsequently to the income statement
Remeasurement gains and losses on defined benefit pension scheme		(611)		840		295
Movement in deferred tax on pension schemes		340		60		(50)
Cash flow hedges
Fair value movements in other comprehensive income		(4,082)		2,578		232
Cash flow hedges recognised in inventories		1,930		(2,333)		2,958
Tax on cash flow hedges		180		(327)		(548)
Other comprehensive (expense) / income for the period		(2,243)		818		2,887
Total comprehensive (expense) / income for the period attributable to equity holders of the parent		(1,420)		1,669		12,404

 

Unaudited consolidated statement of financial position

 

	Notes	26 weeks        ended 30 March 2019		26 weeks ended 31 March 2018		52 weeks    ended 29 September 2018
		£'000		£'000		£'000
Assets
Non-current assets
Property, plant and equipment		22,762		20,430		21,103
Deferred tax asset		736		932		703
Total non-current assets		23,498		21,362		21,806
Current assets
Inventories		27,576		25,171		27,804
Trade and other receivables		5,775		5,335		6,229
Derivative financial assets	3	1,500		-		1,383
Corporation tax asset		-		411		-
Cash and cash equivalents		3,311		5,900		15,682
Total current assets		38,162		36,817		51,098
Total assets		61,660		58,179		72,904
Current liabilities
Trade and other payables		(21,988)		(17,638)		(25,016)
Provisions for liabilities and charges		(268)		(715)		(689)
Derivative financial liability	3	-		(2,520)		-
Corporation tax liability		(118)		-		(550)
Total current liabilities		(22,374)		(20,873)		(26,255)
Non-current liabilities
Trade and other payables		(1,913)		(1,743)		(1,649)
Provisions for liabilities and charges		(420)		(123)		(290)
Employee benefit liability		(7,959)		(6,011)		(6,296)
Total non-current liabilities		(10,292)		(7,877)		(8,235)
Total liabilities		(32,666)		(28,750)		(34,490)
Net assets		28,994		29,429		38,414
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		882		(1,601)		1,123
Retained earnings		24,950		27,868		34,129
Total equity and reserves		28,994		29,429		38,414

 

Unaudited consolidated statement of changes in equity

	Share capital		Share premium		Cash flow hedge reserve		Retained earnings		Total
	£'000		£'000		£'000		£'000		£'000
At 30 September 2017	500		2,662		(1,520)		29,518		31,160
Profit for the period	-		-		-		851		851
Defined benefit pension movements	-		-		-		840		840
Cash flow hedge movements	-		-		246		-		246
Deferred tax on other comprehensive income	-		-		(327)		59		(268)
Total comprehensive income for the period	-		-		(81)		1,750		1,669
Dividends paid during the period	-		-		-		(3,400)		(3,400)
Total contributions by and distributions to owners	-		-		-		(3,400)		(3,400)
At 31 March 2018	500		2,662		(1,601)		27,868		29,429
At 30 September 2017	500		2,662		(1,520)		29,518		31,160
Profit for the period	-		-		-		9,517		9,517
Defined benefit pension movements	-		-		-		295		295
Cash flow hedge movements	-		-		3,191		-		3,191
Deferred tax on other comprehensive income	-		-		(548)		(51)		(599)
Total comprehensive income for the period	-		-		2,643		9,761		12,404
Dividends paid during the period	-		-		-		(5,150)		(5,150)
Total contributions by and distributions to owners	-		-		-		(5,150)		(5,150)
At 29 September 2018	500		2,662		1,123		34,129		38,414
Profit for the period	-		-		-		823		823
Defined benefit pension movements	-		-		-		(611)		(611)
Cash flow hedge movements	-		-		(421)		-		(421)
Deferred tax on other comprehensive income	-		-		180		(1,391)		(1,211)
Total comprehensive income for the period	-		-		(241)		(1,179)		(1,420)
Dividends paid during the period	-		-		-		(8,000)		(8,000)
Total contributions by and distributions to owners	-		-		-		(8,000)		(8,000)
At 30 March 2019	500		2,662		882		24,950		28,994

Unaudited consolidated statement of cash flows

		26 weeks        ended 30 March 2019		26 weeks  ended 31 March 2018		52 weeks  ended 29 September 2018
		£'000		£'000		£'000
Operating activities
Profit after taxation		823		851		9,517
Corporation tax		193		104		1,738
Finance income		(56)		(7)		(31)
Finance expense		87		95		187
Pension contributions paid		(415)		(351)		(704)
Depreciation of property, plant and equipment		1,473		1,456		3,097
Loss on disposal of property, plant and equipment		31		41		430
		2,136		2,189		14,234
Decrease / (increase) in trade and other receivables		430		773		(146)
Increase in foreign exchange contract		-		-		(709)
(Increase) / decrease in inventories		(239)		2,727		182
(Decrease) / increase in trade and other payables		(3,073)		(5,968)		531
Increase in provisions		131		3		859
		(2,751)		(2,465)		717
Cash generated from operations		(553)		(276)		14,951
Income taxes paid		(627)		(989)		(2,096)
Net cash flows from operating activities		(1,180)		(1,265)		12,855
Investing activities
Purchase of property, plant and equipment		(3,248)		(2,381)		(5,094)
Sale of property, plant and equipment		-		1,153		1,254
Interest received		56		7		31
Net cash used in investing activities		(3,192)		(1,221)		(3,809)
Financing activities
Dividends paid during the year		(8,000)		(3,400)		(5,150)
Net cash used in financing activities		(8,000)		(3,400)		(5,150)
Net decrease in cash and cash equivalents		(12,372)		(5,886)		3,896
Cash and cash equivalents at beginning of period		15,683		11,786		11,786
Cash and cash equivalents at end of period		3,311		5,900		15,682

Notes to the financial statements for the 26 weeks ended 30 March 2019

Basis of preparation

The consolidated interim financial statements of the Group for the 26 weeks ended 30 March 2019, 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 26 weeks ended 30 March 2019, 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 2018 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.

1.    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 the latest annual audited financial statements for the 52 weeks ended 29 September 2018.

2.    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.

	30 March 2019		31 March 2018		29 September 2018
	£'000		£'000		£'000
External revenue by location of customers:
United Kingdom	71,257		71,532		156,165
Republic of Ireland	1,738		2,080		4,220
Other	-		60		230
	72,995		73,672		160,615

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

Notes to the financial statements for the 26 weeks ended 30 March 2019 (continued)

	30 March 2019			31 March 2018				29 September 2018
	£'000			£'000				£'000
Non-current assets by location:
United Kingdom	22,744			20,416				21,091
Other		18			14				12
		22,762			20,430				21,103

2.    Derivative financial instruments

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

	30 March 2019		31 March 2018		29 September 2018
	£'000		£'000		£'000
Derivative financial assets
Derivatives not designated as hedging instruments	437		(591)		30
Derivatives designated as hedging instruments	1,063		(1,929)		1,353
	1,500		(2,520)		1,383

3.    Taxation

The taxation charge for the 26 weeks ended 30 March 2019 is based on the estimated effective tax rate for the full year of 19% (2018:19%).

The standard rate of Corporation Tax in the UK reduced from 20% to 19% with effect from 1 April 2017. The standard rate will fall further to 17% with effect from 1 April 2020. These rates were enacted during the current year and deferred tax balances have been stated at a rate at which they are expected to reverse.

4.    Earnings per share

	30 March 2019		31 March 2018		29 September 2018
	£'000		£'000		£'000
Profit for the period and earnings used in basic and diluted earnings per share	823		851		9,517
Earnings per share - basic and diluted	1.65p		1.70p		19.03p

 

END

 

 

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