JD Sports Fashion Plc (JD) Earnings Call Transcript & Summary

Good morning, everyone, and welcome to our annual results, a little later this year than usual. But good to see that the numbers are in line, that we have been delivering growth despite some very tough comps last year when the business was absolutely flying. And I think it is worth reminding ourselves as you look at the current trading numbers that one of the great strengths of the Group is our spread that we're in the U.K., Europe, U.S. And not all of those markets have to be performing at once for the Group to deliver growth. So it's been a difficult start to the year in the U.K. I think many retailers have seen the same. The economy has been difficult. But we're powered on in Europe and we've done very well in the U.S. So one of the great strengths of our business is that we have this spread and this range of good customers we target and it's very good to see. It's been an incredibly busy year. I think as we look back on the year to January '24. We've been very busy on the corporate level, buying in minority stakes in Iberia and Central Europe and a couple of other markets, continuing with the disposals of the non-core business that we announced last year. We've acquired or in the process of acquiring Courir in France, Hibbett in the U.S. Very, very busy year indeed and a very big year in terms of governance improvements. We've strengthened our Board. We've strengthened the exec team, perhaps most notably with Dominic, who is here, as our new CFO. Theresa is here as our new General Counsel. We've strengthened our panel of advisers. We've added Freshfields to the long-standing relationship we have with [indiscernible]. On the legal side, Bank of America have come on as brokers. And it's been a very busy year below the surface in terms of improving and strengthening the business as it looks to the future. And this exciting opportunity we have to develop a truly global brand in JD and deliver outstanding growth in the years ahead. So our agenda today is we'll -- we're going to have Regis next talk about his business review and then Dominic will come on and talk about the numbers before Regis will return to complete this talk about strategy and where we are against the strategy. So thank you very much. And over to you, Regis.

Thank you, Andy, and good morning, everyone. So we had ended the financial year to January 2024 with a profit before tax, an adjusted item of GBP 917 million, in line with our revised guidance provided in our early January update. Overall, for the year, we once again outperformed the market with over 9% organic sales growth. In fact, we delivered more than double the market growth of 4.1% according to Euromonitor. We gained market share in all the regions we operate. We gained market share in U.K., in Europe, in North America and in APAC. But despite this good sales performance, our Group PBT is down 7% year-on-year, reflecting the investments we have made during the year in people, in systems, especially around cybersecurity, in supply chain and in governance, which are critical to support our growth and to underpin our future growth. As announced in January, it means that our profit is below the market expectation due to a combination of factors. At the end of the first half, in September 2023, our Group like-for-like were strong at plus 8% when we confirm our initial guidance. Unfortunately, Q4 2023 was much more challenging with a negative like-for-like in U.K. and Ireland of minus 3% in our more profitable region. We and I should have been much more cautious, especially with a very strong performance in Q4 last year with nearly plus 20% like-for-like. Similarly, we forecast a margin improvement year-on-year for Q4, predicting a less promotional year-end. Contrary to our forecast, the market was highly promotional, particularly online, which impact our margin and our sales in U.K. where we decided not to participate. So combination of lower like-for-like sales and lower margin than our forecast during our biggest quarter, 35% of our profit is made in Q4 with our ongoing investment significantly our profit for the year. But I'm confident with the addition of Dominic and the improvement we are making in governance and finance and in the forecasting process and in our communication with you through quarterly update, we will provide more information and better guidance in the future. Meanwhile, we really believe and we strongly believe that our strategy is right, and let me highlight why. Our athletic leisure fascia, JD and community brands in U.S. delivered double-digit growth and double-digit PBT and we are moving towards a double-digit market share in Europe with our accelerating opening plan and the acquisition of MIG and ISRG, which gives us the opportunity to convert more stores to JD. The same is true in the U.S. with the acceleration of our store conversion from Finish Line to JD, the store opening and the acquisition of Hibbett. JD is becoming more and more a global brand, focusing our efforts and development outside the U.K. With 400 stores in the U.K., we almost reached a point where there is no more room for store expansion. However, unlike most of U.K. successful retailer, we have a powerful profitable and sizable JD business out of the U.K. in the largest athletic leisure market in the world, in North America and in Europe, both with significant room for expansion. We have around 30% market share in the U.K., but less than 10% market share in Europe and less than 5% market share in North America. So plenty to go after. JD First means that the JD brand is our first and foremost priority in all markets we operate. Building JD as a global brand is our core mission and will deliver triple double to double-digit growth, double-digit profit and double-digit market share. So Dominic will now go through the financial and I will come back with the details of the strategy. Thank you.

Okay. Thank you, Regis. Thank you, Andy. So good morning, everyone, and thanks for attending today and for those who aren't here, watching on the web. I've now been at JD since October, and it's been a busy few months, and I thought I'd share a few initial observations as the new CFO. I'll confirm my view that I had on joining that JD has a really strong business model and has all the ingredients it needs to deliver long-term growth and significant cash generation for shareholders. It has a clear 5-year strategic plan to deliver the vision. JD has a great culture. It's hard working, fast-paced and very positive. JD is full of people who are extremely passionate for the business and its success. And there's huge experience across the entire business, which is a massive competitive advantage. And selfishly has proved very beneficial for me over my first few months as I've got up to speed. Finally, I just wanted to address the reporting control environment. I know Andy has spoken before about the work we've been doing on governance, risk management and the control environment before I joined and a lot has already been achieved. JD has grown quickly. And it's not a huge surprise that the risk and control environment is not as mature as you would see in the business that has been at this scale for some time coming in with a fresh pair of eyes. And with the benefit of a new auditor, this has allowed us to review our areas of focus and fine-tune our plans, continuing the work already started to embed consistent controls, upskill capability and upgrade our systems. This will be a multi-year journey. And working with the new auditors, I've reviewed our reporting and accounting and we've identified a number of improvements as well as prior year adjustments, both positive and negative, which we have clearly identified in today's results. You'll see that most of those affect non-trading items, but we have improved the way that we report our like-for-like and organic sales. And as previously announced, from FY '25, we will be changing our segmentation. Historic full year comparatives were included in the RNS this morning. And just a reminder, we're reclassifying the amortization of acquired intangibles into adjusting items from FY '25. So okay, turning to a summary of the Group P&L for the year. As you can see, we'll only have the various improvements to reporting just mentioned, but the complication of an added 53rd week. The general rule is that to ensure a fair comparison with the prior year, we will use 52 weeks, unless stated otherwise. Well, we will use 53 weeks, but that's generally for statutory measures, cash flow and balance sheet. So on a 52-week basis, revenue was up 2.7% to GBP 10.4 billion or 2.9% on a constant currency basis. This was after the impact of disposals, both those made in FY '23 and FY '24 as we continued to simplify the Group. Like-for-like sales growth was 3.8% and organic sales growth was 9%. These numbers are slightly different from what we reported in March as we've improved the analysis and reporting of like-for-like and organic to include all our businesses within JD and we've taken out any impact from disposals. Previously, even if something was sold in the year, it was included in like-for-likes up to the point of disposal. We felt that this approach didn't give a fair reflection of the underlying performance of the online business. We've included the adjusted quarterly, half year and full year like-for-like in organics by region for you in the appendix to the presentation. Our gross margin was 48%, slightly down on the previous year. This reflects the increase in store growth, driving a higher proportion of sales through our store channel as opposed to online and the higher gross margin from the JD fascia growth, and that's been offset by the impact of elevated market promotional activity. The reported gross margin has been updated from what we reported in March as a result of the reclassification of marketing revenues in both years from operating costs to cost of goods sold. The impact was a benefit of 50 basis points in both years. Operating profit before adjusting items was down 7.9% due to an increase in operating costs of 5.1%, around double the rate of revenue growth in the year. This reflects the ongoing investment in our platform for long-term growth across such areas as our people, our supply chain, our systems and our stores. The net financial expense fell almost 19% as better interest income from our cash reserves more than offset increases in our lease financing costs. On a 53-week basis, our PBT before adjusting items was GBP 917.2 million in line with our guidance of GBP 915 million to GBP 935 million, which was also given on a 53-week basis. On a 52-week basis, PBT before adjusting items was GBP 912.4 million, down 8% on the prior year. Adjusting items were much smaller than last year with the movement in the present value of put and call options, a loss on divestment of Group companies and the impairment of intangible assets and investments all materially lower year-on-year. So with the result of that and the reduction in adjusting items, statutory profit before tax was up 65.7%. Tax before adjusting items on a 53-week basis went up due to the U.K. corporation tax increasing from 19% to 25% leading to an effective tax rate of 24.5%, up from 21.8%. Non-controlling interests on a 53-week basis reduced due to the acquisition of various non-controlling interests in the year, of which ISRG and MIG were the largest. This all meant that adjusted earnings per share fell 8% to 12.21p per share on a 53-week basis, reflecting the reduction in profit and the increased effective tax rate, offset in part by the benefit of the acquisition of the non-controlling interests. So now let's turn to the revenue bridge from last year to this year. First, we'll take last year's revenue and adjust for FX. That was worth 0.2 percentage points. So total revenue growth for the year of 2.7% on a 52-week basis was 2.9% in constant currency. Then we make adjustments for acquisitions and disposals. For the base, we take out the FY '23 revenue from the disposals and businesses held for sale in both FY '23 and FY '24 to get to a new base from which to calculate like-for-like and organic growth. We can then compare the rebased FY '23 with like-for-like sales of 3.8%, slightly below what was previously reported before the changes to our calculation methodology and new space growth of 5.2%, slightly above what we previously reported. Had these 2 up and you get the 9% organic growth we have reported today. Then to finish off the bridge from the 52-week revenue of GBP 10.4 billion. We add in the annualized revenue from prior year acquisitions, in this case, a very small amount for Swim! and the FY '24 revenue from businesses sold or held for sale in FY '24. And finally, you can see the 53rd week, which added 1.4% to the total. To provide more color on our revenue trends, I thought it's helpful to provide some additional analysis. By region, we saw strong growth in North America and Europe, and this in particular has further balanced our geographic mix. Adding in Asia Pacific, 2/3 of our business is now outside the U.K. and Republic of Ireland. With the majority of our capital expenditure and our prospective acquisitions focused on those regions, we will see their share of revenue continuing to grow. We view our business as very much an omnichannel business. It's our job to make it as easy as possible for customers to choose how and where they want to buy. However, looking at the mix of revenue by channel, you will see an increase in sales from stores. This reflects the investment in new store space, online sales penetration tends to follow in new catchment areas and a return of online penetration to pre-pandemic levels. Finally, product wise, a robust performance in footwear has seen its share of sales increase, particularly given what was a weaker performance in apparel during the peak season. I'll now start to unpack the results by region. To set the scene, here is an overview of revenue and operating performance by segment. The overall 2.7% sales growth marks a strong 9.8% performance in our Premium Sports Fashion segment. This was offset by a decline in our other sports fashion businesses due to disposals and a challenging year in outdoors. Operating profit wise, a combination of pressure on margin and the investments we are making in the business more than offset sales growth in our Premium Sports Fashion segments. This was offset in part by our other sports fashion businesses, which saw improved profit as we disposed of loss-making businesses. So firstly, looking at Premium Sports Fashion in our home market, our longest-standing market, the U.K. and Republic of Ireland. I would describe the year in the U.K. and Republic of Ireland as being solid. With our market share as it is, there's less opportunity to deliver material outperformance of the market. However, we did manage to deliver Premium Sports Fashion like-for-like sales growth, and more importantly, given our strategy is focused on improving the quality of our stores and locations overall, we achieved organic sales growth of 2.3%. Sales were held back by our disciplined approach to the elevated market promotional activity during peak season and our gross margin was up strongly in the year as a result. Operating profits were down almost 8% due to the increased investment into our people, systems and supply chain, a large portion of which falls to the U.K. P&L, but some of the benefits do get seen elsewhere, such as our cyber investment and our upfront costs of systems replatforming. Therefore, the operating margin declined by 1.4% to 12.8%, a trend we expect to continue into FY '25 given the continued investment and a more challenging market. Finally, before I move on, I should flag that this is the last time we will report the U.K. and the Republic of Ireland together as under our new segmentation, the Republic of Ireland is joining Europe. Now looking at our European Premium Sports Fashion business. It was a really strong year for sales growth with like-for-likes of 10.5% and organic growth of over 25%, reflecting the 84 new JD stores opened during the year. There was good organic growth across all major markets with like-for-like growth strongest in Southern Europe markets where JD brand is growing in awareness and where there is lower apparel mix too. However, there was also a bit of pressure on the operating margin this year from a combination of lower gross margins than anticipated due to the elevated market promotional activity across Q4 and higher operating costs as we invested to strengthen the platform for long-term growth in the region. Included in these costs were the costs of the Conbipel and GAP stores, which we incurred in between buying the stores and opening them and dual running costs as we open our new Heerlen distribution center in the Netherlands. Moving on to North America. It's a slightly similar pattern. We saw good LFL growth of almost 4% and organic sales growth of just under 10% with JD, DTLR and Shoe Palace all delivering strong organic growth in the year. Margins were down in the year, though as the promotional activity in Q4 drove gross margins down and we weren't able to recover in terms of operating costs through the peak trading period. Finally, in terms of Premium Sports Fashion Asia Pacific, our smallest region, contributing 5% of revenue. Excellent growth again with strong double-digit like-for-like and organic sales growth. All markets performed well. Total revenue growth though was just 12%, impacted by exiting the South Korean market where we closed 12 stores. Gross margins were a little under pressure in this region too. It also is not immune to the elevated worldwide promotional activity we're seeing in the market. And this caused the operating margins to be slightly down year-on-year. Pleasingly though, operating profit still grew by 4%. Now quickly looking at the rest of our sports fashion segments where there has been a lot of M&A during the year, which complicates the numbers. In terms of what we call other fascias, which includes Sporting Goods, other European fascias such as Sizeer and Macy's in the U.S., they all achieved a reasonable like-for-like and organic sales growth with Cosmos in Greece and Cyprus the standout performer. However, overall revenue growth was down 18% due to the disposal of the remaining U.K. fashion fascias early in the year and the bankruptcy of the SUR business in Netherlands after we took control of ISRG. Despite the revenue decline, operating profit actually grew a little. This was because of what we sold and what we closed, the U.K. fashion businesses and SUR were either low margin or loss making. In terms of other businesses, which include our Gyms and other non-retail, non-fashion businesses, it was a similar story with revenue materially down on FY '23 due to disposals. But again, as those disposals were not profitable businesses, we saw operating profit and margin growth as a result. And finally, on to our Outdoor segment, which represents approximately 5% of our revenue. This comprises Go Outdoors, Blacks and Millets plus a small number of smaller outdoor retail brands. Like-for-like sales were down 2.6% and revenue was down overall by 2.1%. If there's a part of our business that is truly weather dependent then it is Outdoor. The weather during the year didn't really suit especially the mild autumn and the early winter we had in the U.K. However, in line with the rest of the business, we continue to invest and we've taken action to support future growth of our Outdoor segment, including restructuring our supply chain arrangements. And so a small drop in revenue led to an operating loss in the year of GBP 7 million. With the work we've done on the supply chain, we expect to see an improvement in the performance of our Outdoor segment in FY '25. So with the P&L is done, moving on to cash flow. We had an overall cash outflow of GBP 447.3 million in the year. This reflects a strong cash flow before M&A and dividends of GBP 215.9 million, notwithstanding investments in working capital and significantly increased CapEx spend. With a GBP 611 million outflow following the buy-out of the noncontrolling interest in ISRG at MIG and the net cash outflow from disposals, which reflects deconsolidation of cash in the disposed businesses, plus the GBP 52 million on dividends, we have the total outflow of GBP 447.3 million. Despite the overall cash outflow, we still had a healthy cash and cash equivalents balance at the year-end of GBP 1.1 billion. I'll now go into some of those items in a bit more detail. So starting with inventory. Overall inventory was up GBP 126 million year-on-year. This represents about 15% of revenue, just up marginally on the prior year, which was 14.5% and reflects our increasing revenue and store opening program. Taking those factors into account, the U.K., Republic of Ireland and Europe have seen improved stock positions, but North America was up more than would normally be the case, but essentially reflects the phasing of ordering of stock for the new stores and the new season. And as we expected, this has been unwinding through the first quarter. A major part of our cash flow is our capital expenditure. We have increased investment in support of our key strategic pillars. We spent just under GBP 570 million last year, about 5.5% of revenue with the majority in our growth regions of North America and Europe. In line with our Capital Markets Day guidance, around 60% of our CapEx has been on store openings, underpinning our JD First and Complementary Concepts strategic pillars. I've been impressed by the approach we take to our store investment. It's very disciplined. Planning approach, which includes catchment area, competition, fit-out and a clear view on which fascias and cost model are right for which locations. All new store approvals, relocations and extensions across the whole Group come to a Central Property Board, which Regis and I attend. And apart from some very few flagship stores, we apply a strict 3-year payback hurdle. The remainder of our CapEx is principally on supply chain and IT. In the short-term, more of that spend is on supply chain as we invest to improve efficiency and capacity across all our markets. As Regis will explain later, our IT spend to date has been more tactical, but will increase as we move towards more strategic work across our tech estate. But you should note that a lot of IT spend now falls into OpEx, and I will continue to update you on this as our planned developer. The third major part of our cash flow is on M&A where we saw a GBP 611 million outflow. It's been a busy year. I can't take any credit for that, coming in only halfway through. We spent GBP 557 million on buying out the non-controlling interest in Germany, Malaysia, ISRG, Iberia and Holland and MIG in Eastern Europe. This importantly allows us to accelerate the JD rollout in these markets and to optimize business efficiencies and it's earnings enhancing. We've also continued with the divestment of non-core brands, streamlining the Group further to those fascias that align with our strategy, which in total was a net cash outflow of GBP 54 million, and as I said earlier, reflects the deconsolidation of cash in those disposed businesses. And as we look to this new financial year, we have the acquisition of Courir and Hibbett to complete, which will strengthen our Complementary Concepts in Europe and North America, and Regis will cover these in more detail later. Continuing on the theme of prospective acquisitions of Courir and Hibbett, I thought it would be helpful to lay out the M&A commitments that we have coming our way in the near-term. All told, we have over GBP 2 billion of M&A commitments, EUR 520 million for Courir, $1.1 billion for Hibbett and the remaining material non-controlling interest, the 20% of Genesis, the holding company for our North American business. We valued that at GBP 763 million in the accounts for FY '24. This is before any impact from the proposed acquisition of Hibbett. But based on that valuation, illustratively, we would see close to GBP 200 million a year cash outflow from FY '26. In terms of the impact on our balance sheet, we finished the year with net cash of just over GBP 1 billion, which equates to a positive net cash leverage of 0.6x EBITDA. Including lease liabilities, this would change to net debt leverage of 0.9x. On a pro forma basis, if we include Courir and Hibbett, we would move to a net debt position with pro forma leverage of 0.2x EBITDA. And again, if I then include lease liabilities, our leverage would move to 1.5x EBITDA on a pro forma basis. And in terms of funding these commitments and business investments, first of all, as the cash flow slide showed, we are a cash-generative business. Secondly, we had GBP 1 billion net cash at the 3rd of February as well as an undrawn RCF of GBP 700 million and an ABL in the U.S. of $300 million, of which just $12.5 million was drawn at year-end. Finally, to maintain liquidity with our new acquisitions, we have arranged new committed facilities ahead of completing Courir and Hibbett through a EUR 250 million term loan and $1 billion acquisition facility. And for completeness, as the chart shows, this new or the new and existing facilities mature by FY '28 with the majority in FY '27. The last few slides on our commitments, leverage and near-term refinancing commitments provide a good context for our capital allocation priorities. We'll confirm a formal capital allocation policy in due course, but I wanted to lay out our short to medium-term priorities. 2 key aims for us are maintaining a strong balance sheet, and at this early stage in our strategic plan, maintaining flexibility to deliver that plan. Within that context, our current priorities are; firstly, organic investment in the business. We have plans to spend 5% to 6% of revenue, about GBP 600 million of capital expenditure a year. The majority of this is focused on our store rollout with clear payback criteria. Secondly, M&A in support of our strategy. We have existing commitments with Courir and Hibbett and we want to retain flexibility for M&A that supports our strategy and to buy-out the remaining non-controlling interests. Thirdly, we recognize the importance of ordinary dividends. The dividend today is low relative to earnings and our absolute dividend is small. Reducing cover over time as our investment plans reduce will not materially impact on our ability to invest in the business and M&A to deliver our strategy. A standard capital allocation framework has a fourth of them as this slide shows, delivering incremental capital returns to shareholders. This is not a priority today. There will be a role for this in the medium term as the investments we are making scale back and we see the returns coming through. And now on to our Q1 performance. It was in line with what we were expecting. I think I said when asked the question back in March, what I thought LFLs would be for Q1 and the flat would be a very good result. That was never our target and a small decline of 0.7% given the comparative last year of 14.5% growth is a good platform for the rest of the year. The comparatives start to ease in Q2, which is partly why we think LFLs will pick-up as we go through the year. It's still a tricky market to read. In Q1, we had changes to Easter dates, possibly still some resetting post-COVID in terms of underlying month-by-month trends and continued promotional activity online and in apparel, all of which are making day-to-day and week-to-week quite volatile. The U.K. has been, as Andy said, the tougher market in the first quarter, but its LFLs on a 2-year basis are broadly flat. We saw like-for-like growth in both Europe and North America and outside the U.K. organic growth was strong in the other 3 regions. In terms of margin, it was also in line with our expectations at 48.2% in line with last year with our focused discipline on sales and profit -- on profit in the U.K., offsetting the impact of elevated market promotional activity, which we have seen continue through Q1. On the last slide, FY '25 guidance. We are maintaining our guidance of PBT before adjusting items of GBP 955 million to GBP 1.035 billion and that's post the accounting change we told you about in March. Market conditions haven't changed materially yet. It's still quite promotional in some markets, particularly online and in apparel. And as I said earlier, Q1 was in line with our expectations. The overall assumptions we listed in March are also still the same. And finally, just a reminder that our guidance excludes Courir and Hibbett. When those deals are complete, we will update our guidance. So thank you for listening. I hope that was helpful, informative. And I'll now just before Regis talks you through the strategy, share a video with you. [Presentation]

Good. Thank you, Dominic, and it's a good feel to summarize our year. So as I previously mentioned, I'm confident that the strategy we announced in the Capital Market Day is the right direction for the Group, and I will go in more details. As a reminder, our strategy is built on 4 strategic pillars, focusing on making us the most successful sport-based fashion, footwear and apparel retailer in the world. JD Brand First, JD is our first priority, building JD as a global brand is our core mission; JD Complementary brand to target a wider and diverse customer and contribute to our scale and market presence; JD Beyond Physical Retail, building in a faster tool to support our growth; and JD to be the best for our people, for our partner and for the community we serve. So if we go to JD First, just to remember everyone, we play in the most attractive segment of the market, which is in between sports and fashion, which we call athletic leisure. According to Euromonitor, the growth on average for the last 4 years has been around plus 4.2%. And they forecast a plus 6% -- 6.6% for the coming 5 years. This is an average. You should not forget this is fashion. It is retail. It means that there is not -- it's not a linear growth. You need constantly to innovate, to bring new product, new material, but the fundamental of the market we operate are strong. As we see for formal wear and formal shoes continue to be replaced by some comfortable athletic leisure wear and sneaker. You see that in the street, you see that in the workplace since COVID. The trend to wear more comfortable, more versatile clothing continue and accelerate. Following Q4 week performance, we did conduct some internal research, and it shows us that it will likely to continue. 60% of customer says that they will spend more than they currently spend on athletic leisure. So -- and our customer is a young customer. It's a young adult, the 16, 24 years' old. This customer has moved fast. They wear the latest brand. They take on new trend quickly. They want more assortment, more access, more choice, more brand, more head to toe looks that blurs the line of sports and fashion. They are looking at global trends at TikTok social network. They are global. And they are not monobrand. And I think that's really important. They want to be free to mix brand, to mix sport and fashion, to shop with their friends in a multi-brand environment in a large environment. The key complaint of our customer is that the music is too loud, which is part of what we like to do. This gives us this unique relationship with the brand because that's the value we create for the brand. We see the trends before them. We see the trends happening. We saw the terrace trends before Adidas. And we operate globally so we can leverage that across the globe. We launched Samba in exclusivity in Australia because we did see it coming before our local competitor. This is more important. They love the JD brand. And the next slide is to highlight our potential and to highlight our potential by region. If you take U.K. where we are at the mature stage as a benchmark in terms of number of store per inhabitant and calculate the potential over the different regions we operate and where we have already present, you can see we have a potential of 6x more store in Europe, 17x more stores in North America and more than -- even more than that in APAC. That gives us this global player. This give us the opportunity. This is only -- we only have 3 countries where we have more than 10% market share; U.K., Ireland and Australia. Meanwhile, in all the countries we are operating, we have already a significant presence, we have people, we have infrastructure, we have customer, we have brand love and we have a profitable store and country with a significant potential to grow. And if you look at our operating metrics, we put the key metrics that we have for a retailer. The most important one for me is a store productivity, space productivity. And you can see, it's almost the same by region. This is our 4 regions; U.K., Europe, North America and rest of the world. And you see the store productivity being almost the same and it's 50% more than our peer group. So this gives us the quality of our concept. This is partly linked to our mix with a higher penetration of apparel. And it's linked to the fact that we are using the space much more efficiently. This gives us the ability to secure the best location in the best mall and deliver superior return. If you look at the profit, all our regions are profitable and our EBIT margin is significantly higher than our competitor and double-digit except Europe. As you can see, Europe is the only region where we are below the double-digit line, which is mainly linked to our supply chain cost, which has not been adjusted or expected and with a double running cost of our warehouse and due to our accelerated store expansion. The same in terms of digital penetration, icon penetration is lower in Europe linked to our supply chain as we are using our U.K. warehouse partly to fill the order to Europe and with a low service to our customer. But it's shows -- our penetration shows how powerful is our omnichannel proposition versus pure player and D2C. And looking at the first metrics, JD brands are delevering strong growth in the last 5 years, almost 5x the market average with particularly some growth coming from our new regions, Europe, U.S. and APAC. And that shows our potential for the coming years. And our mission to expand our footprint globally to capture this growth. We'll continue to expand our store network. We have done extensive work to define JD brand's store potential by region, by country and shared with you our target by market with around 800 stores in North America for JD alone on top of our community brand and 900 stores in Europe. We did committed to deliver around 200, 250 new stores per year with a strict and proved CapEx process and discipline, as Dominic highlighted. Last year, we opened more than 200 stores across the world. And the first year of those stores has been outpacing our appraisal by 20%. In North America, we opened 87 stores -- 97 stores and we are on track to open around 100 stores for 2025. In Europe, we opened 84 stores last year, particularly in markets like Italy, thanks to the acquisition of Conbipel. In 2025, we plan to open more than 100 stores, thanks to converting ISRG store, Sprinter and Sport Zone to JD and the MIG store Sizeer in Eastern Europe to JD. Last year, for the rest of the world, we signed our first franchise agreement with GMG for the Middle East. We have signed another agreement for South Africa. It gives us a very efficient model with high return on investment. Our first franchise store opened a few weeks ago in Bahrain. We will have other openings this year in KSA, UAE, Qatar, Egypt and South Africa. In Asia, we acquired the minority interest of our Malaysian, Thai and Singapore business to take full control of the operation. And we have seen huge improvement by using and leveraging our Australian team. In the U.K., we opened 21 new stores last year, bringing us to the total of 400 stores. We plan to open 10 new stores by 2025. We are more focusing on expanding our store, giving better store to our consumer. This shows a strong potential for growth and market share gain across our key region with excellent return. If you take JD complementary brands, to support the JD brand, we have complementary brand to target a wider and diverse customer and contribute to our scale and market presence. When I took over the business, we had 65 fascias, which creates significant complexity and risk. Meanwhile, our 6 core business, on the left here, were representing -- were delivering 90% of the sales and 95% of the profit. Based on this, we have driven a program over the last 2 years to divest and to rationalize those businesses and fascias that do not contribute to our core. Believing that less is more, more focus and more growth, we have done now most of the clean-up with only a handful business to finalize the divestment. At the same time, we rationalized this complementary brand around 3 pillars. The first one that is around to leverage our family, female, fashion concept. This is Macy's in the U.S., Sizeer in Eastern Europe and the recent acquisition of Courir in Europe subject to relevant approval. Courir is a great asset to add to our portfolio. In 2022, Courir made a profit of EUR 50 million and a revenue of EUR 600 million. They have around 300 stores across 6 countries in Europe. And most important, they appeal to a very different customer, the female market, which is underserved in our industry. And we believe that with Courir, we have the right offer and the right concept to respond to her. Second, our community brand. We have Shoe Palace and DTLR, which are located in local community with a different customer. The proposed acquisition of Hibbett is an exciting opportunity to grow this community offering in the U.S., while we cover -- which I will cover in more details shortly. And finally, our Sporting Goods business in Iberia where we have Sport Zone and Sprinter, #2 of the market and Greece with Cosmos #1 of the market and our Outdoor brands in the U.K., which continue to offer an extended range of product to our customer. But let's go into more details around Hibbett. So this is the way we look at the U.S. market. On one side, you have the A and B mall and the key high street. They are destination retail where customers are going to get the best experience, the best brands, the best retail, the best entertainment and the best F&B. Customers will typically drive 30 to 45 minutes to go to those malls. So those locations are JD brand location where we are giving U.S. customers the best retail experience, a unique and exclusive global offering. On the other side, you have a second proposition, which is community retail. This is a convenient offer for the community at walking distance of the store or quick drive time. They are strip mall, C&D mall or street location. The store is offering a more limited range of brand and product, targeting to the specific need of a local community. This is where most of the portfolio is for DTLR in the East part of the country and Shoe Palace on the West. And where Hibbett will play in the center of that country. If I talk a little bit more about Hibbett, they have a strong brand equity, they have a loyal customer base and an excellent relationship with the brand and they're offering a physical presence to the brand with the customers that D2C is not able to reach. They have 1,150 stores across 36 states with 80% of those stores located in the community, making them easily accessible and relevant. They are offering a powerful omnichannel experience with a full integration between online and offline. Hibbett is 1 of the 2 Nike U.S. connected partner, demonstrating the close relationship and the added value of Hibbett's position for Nike. Thanks to Nike Connect, their exclusive and premium Nike product they can offer to the market. The company is strong financially with $1.7 billion turnover and a profit before tax of $132 million. And if you take around location, the location -- Hibbett store location perfectly complement our existing portfolio, as I said before. Shoe Palace's strong presence in West Coast, DTLR's strong presence in East Coast and Hibbett is strategically located in smaller town, community area in the Southeast and Central area. This footprint fills the geographic gap between our other brand and with less than 10% overlap with our existing portfolio. And if you look at our track record in U.S., it's very impressive. We bought Finish Line in 2019. At that time, the revenue was GBP 1.3 billion and the business was loss making, GBP 30 million loss. In 2022, we bought Shoe Palace. At that time, revenue was GBP 0.5 billion and a profit of GBP 50 million. And we bought in 2021 DTLR. At that time, same size, GBP 0.5 billion turnover and a profit of GBP 20 million. So if you look at -- if you take each of these acquisitions, and we took them to another level of performance. By 2023, our sales in the U.S. reached $3.9 billion, which is $1 billion more compared to the addition of the historical sales of the acquisition of the 2 businesses. And we are making a profit of $361 million, which is 10x more than the profit of the business at that time. So the proposed acquisition of Hibbett means that our sales will reach on a pro forma basis, close to $6 billion, $5.9 billion, which will put us beyond Foot Locker in terms of sales in the U.S. JD Beyond Physical Retail. One thing we need to be mindful, and Andy has said that in his introduction, is that JD has not built infrastructure, the risk management in the organization for a Group of our size. There is a lot to work, to be done to build an infrastructure and to develop our back office capability to support our business and other growth. And we are focusing on 3 pillars. The first one is supply chain, building a distribution network with the capacity to support our growth in North America, in Australia and in Europe. Second pillar is technology, starting by security, cybersecurity and digital. And the third one is around data and to build a loyalty ecosystem to capture and leverage our data. If I go first on our supply chain, and if you look at different regions, in U.S., we don't have enough capacity in our existing warehouse to support our growth. The acquisition of Hibbett will give us more capacity and a stronger distribution network. In APAC, we will open a new warehouse in the coming 12 months to support our growth. But our priority is Europe with Brexit is no more competitive in terms of cost and speed to market to use our U.K. warehouse to serve Europe. A new distribution center in Heerlen will give us the ability to serve our European store from this warehouse. Right now, Heerlen is up and running, as Dominic said, but with manual operation. It means that we continue to use our U.K. warehouse and an existing warehouse we had in Netherlands to feed the store. This will move to automation in 2025. That means that we can stop gradually using our U.K. warehouse and old facility and stop to incur the double running costs. In 2026, we'll start to use this facility for direct-to-consumer order. This will allow us to deliver orders straight from the distribution center to our customers across Europe in -- on average, 1 day or same -- next day or 1 day after, which is not the case today. Those improvements are crucial to increase our profit in Europe. And this will have implication for our U.K. supply chain too by reducing the volume of order fulfilled in the U.K. for Europe. If I look at our system, the first priority has been security. We are putting significant investment into improving our cybersecurity. We have built a new team to better safeguarding our system and our customer data from any potential threats. Second priority, omnichannel. To make sure that our online and in-store shopping experience are seamless, we are replatforming our e-commerce. We're making it easier for your customers to shop, how they want, when they want and why they want. Third priority, our tech strategy, is evolving -- reviewing and improving our existing system across the board to support our growth and enhance our overall portion. Last, our data. We are building and scaling our STATUS loyalty program that we had in the U.S. to build an ecosystem to deliver more service, more product and an improved customer experience to our customer. It's an application-based loyalty program that gives us a direct communication channel with our customer. In the U.S., our JD STATUS program has been live for a while and we have seen over 5.1 million of customers shopping through it in 2024. So loyal customer account for over GBP 1 billion in sales with an impressive attachment rate of 38%. This shows how valuable and engaged in our loyalty program is for our customer. In U.K., we launched a program 6 months ago. We had over 1.2 million download and our loyalty customer has spent more than GBP 0.2 billion through the program. This quick adoption and high level of engagement demonstrates a strong connection on our customer field with JD Sport. Looking ahead, we are excited to expand our JD STATUS program across Europe with a launch in France planned for the second half of this year. This will help to build our data and understanding our customer and to use to give a better service to our consumer. JD people partner and community. Our people, partner and community are the heart of everything we do. JD, we want to be the best for our people. Our people are the driving force behind JD growth and success. Without our people, we will not be here. Every achievement has been made possible by the dedication, the talent and hard work of our team. And one of the things we have done is to make sure that we reward them in the right way. And I think we have invested GBP 70 million in pay increase last year. This is on top of the minimum wage increase of GBP 30 million. We have improved training and development. 90% of our store managers are going through our program and are being trained by us and our internal promotion. We have a great global system and we will be live in September that make us ability to leverage our people not only within the country we operate, but globally. And in terms of ESG, we have retained our A- status, which put us one of the best retailer in terms of where we are in terms of sustainability and status. So as a conclusion, 4 priorities for next year -- 5 priorities for next year. The first one is trading. As Dominic has said, it's quite volatile and we are doing our best in order to take all the opportunity in terms of sales in our different markets. Second one is continue to open our doors. We have a strong growth, strong organic growth and we have a plan to deliver more than 200 stores next year. Third one is around integration, integration of the acquisition of Courir and Hibbett. Fourth one is our supply chain and mainly Heerlen to accelerate to make sure that this land properly and deliver what is supposed to deliver in terms of productivity and in terms of service to the store and to our customer after. And the fourth -- the fifth one is around e-commerce replatforming. We strongly believe, as I said in introduction, we have the right strategy. We are becoming more and more global and leveraging on the different market to increase our market share and to deliver more to our customers and to our shareholders. Thank you. [Presentation]

Okay. We'll start with any questions in the room, I guess.

It's Grace Smalley from Morgan Stanley. I guess, I'll start on the first one, it's more for you, Dominic, given your very helpful comments on the last conference call of Q1 flat like-for-like being a very good outcome. As you look ahead now towards Q2, given the comments you made on volatility, but then at the same time, you have a much easier comparison base, you have upcoming sports events. As you look at Q2, what are you thinking in terms of the potential range of outcomes? And what you're seeing in May and how that varies by region?

Grace, I won't give you forecast in May because we need to look at the quarter as a total. Our comparators, you say, get easier as you go through the year. It does remain volatile. We are seeing positive trends coming through as we worked our way through the first quarter. So I expect to see the second quarter being positive. We need to go through the whole quarter before we see the sort of extent of that and we'll update in August.

And then, Regis, my second question would just be on the fashion trends you mentioned. You mentioned how you were very early in identifying the terrace trend. It does seem we've seen this kind of big fashion shift, I guess, from Chunkz shoes to terrace shoes, low-profile shoes. What are you seeing now today as you look ahead in terms of consumer fashion preferences for footwear? And typically, how do you -- how long do you normally see these product life cycles last?

That's a long question. We have nice Samba shoes. I think it depends on how the brand is and how good the brand is managing that, because you have seen -- if you take Air Force 1, which is still our #1 shoes, the trend has been long and I think the cycle has been very long and it continues to be very successful. And you are seeing some other things moving more quickly. So I think what we have seen definitive is that customer, because they are using more and more sneakers, they want to have more and more shoes, more and more brands. So we see more diversity. And I think that we see a huge appetite for newness. So we see the success of the launch of Nike DN, which is mostly linked to customer wants something new and they keep wanting something new. At the same moment, they want to renew the Air Force 1 and that. So I think that it's really -- it is -- I think the growth that Euromonitor is showing is really the fact that you are now having more and more shoes and you want to have more and more diversity, more color.

Ruben Pathmanathan from Peel Hunt. So the first one is on brand product innovation. You have good visibility on product pipeline, but do you like what you see? And how much impact does JD itself have on the design process?

So yes, we have been -- yes, we like what we see. We have been with Nike in Paris who show us all the innovation and they include us in the process of -- by taking our feedback, taking our buyer before the product is fully designed to make sure that we give them the feedback. They are designing the product, we are not. But we are giving the feedback and our feedback is more and more taken into account. And everything we have seen is very exciting. I think it was mentioned by Dick's 2 days ago, and I think we see the same things. And I think that it's quite refreshing to see all this new product coming.

Yes. Second one is just on markdown activity. So it looks to be moderating, I guess, in the U.S. according to Foot Locker and Dick's? Are you seeing a similar activity across your stores?

No, we have never been promotional. So I think that it's something that is linked to stock position. And I think that you have seen that our stock positions seem to be in a better place. So we've seen that. At the same moment, apparel is more promotional because it's more weather-related, more volatile. So people get -- it's part of what makes a fashion retailer. I think attendee will say that, it has been over -- you have a good season, bad season and you need to get rid of stock. So I think that we are in a normal promotional environment, but it's still a high promotion, especially and as Dominic said, I think online players are suffering because I think that customer is going back and are looking for an omnichannel experience. And I think that they are struggling. And so they are more promotional and that impact us in some of the country.

Okay. And just another one on how the new acquisitions are going. What synergies are you sort of expecting to see?

So I'm not giving any forecast on this one because it doesn't depend on us. So that -- so on Hibbett, we have filed 20 days ago. So there is a first hurdle, which is in 10 days' time where we will have the answer. So either there is no question and there is an approval. And that go -- and after that we go to the AGM for Hibbett to approve that. So that's one of the scenario. The other scenario is that they have some questions and we start to have the process of our questions, but that's opened another 30 days. So that's a process. So we believe that it could be quick for U.S. For Europe it's more -- it's a longer process. It's now 12 months. We have answered all the questions. We are looking to file in the coming days in order to put the process on the clock. So after that, there is 30 days. And at the end of the 30 days, it's either approved or either we go to Phase 2, which is another long process. So that's where we are. So it's not under -- we would like to be quicker and to control, but it's not under our control.

It's Warwick Okines from BNP Paribas. Just carrying on about the question of newness and innovation, Regis. I think previously on the last call, you talked about that landing some time during H2, but you weren't sure when. Do you have any better visibility about whether that will meaningfully contribute to H2?

I think that -- I don't think it will be meaningful for H1. I think it will come in H2. And it's the time to scale, the time to get there. And it's important for the brand not to burn and to go too quickly. So I think that -- so we are clear that we want to make sure that the product comes. It takes the time to get the consumer response. There need to be some scarcity at the beginning to create attention from the consumer and that should come. So I think that it will come in H2. It will not have a meaningful impact in H2. But at the same moment, we -- in H2, we have much lower comp for. So I think we -- that's what we are. Plus we have the Olympic Games, the European Cup, which will create interest in sports, and I think that always benefit to us.

Secondly, could you comment a little bit more about the U.K. performance in Q1? Just how are you thinking about managing that? And I presume that within the flat gross margin year-on-year across the Group that the U.K. margin is stronger?

So U.K. margin is always stronger than the rest of the Group. It's a little bit higher than the rest of the Group. I think when you look at the 2 years like-for-like, it's a flat like-for-like. So we had a huge comp in U.K. in the first quarter last year. I think we see, as Andy mentioned, I think we have seen most of the retailers has been struggling a little bit in the U.K. more than the rest and I think that we've seen the same. We have a higher apparel penetration in U.K., which is more volatile than footwear. So footwear has continued to do well and it's quite steady. I think that it's apparel, which is up and down and it's weather-related. It's more promotional because retailer can -- and especially online retailer, can be very nervous about stock and they're starting to do promotions. So that's what we are facing. But we are in a good place and footwear is very strong and very steady. I've seen some very encouraging things in the U.K. as well. I mean, our in-store conversion of people who come in and a number of proportion we sell through is very strong. And that's always -- that's a good sign.

The one thing I'd add to that. I mean, considering what we said after the peak season, we are focusing on profitable sales in the U.K. We're not participating in the sort of promotional environment, which is particularly online. And therefore, it's not a surprise that our sales are backwards a bit. But that's to your point, does support margin in the U.K. business.

So third and finally, a really boring question. But previously, Dominic, you had said that the 53rd week should contribute GBP 10 million to GBP 15 million of profit logically, but it only contributed sort of GBP 5 million. Is there anything particular you'd call out for that?

No, I think it's just fine-tuning the numbers as we went through the year-end process. It's -- there's a lot of what we say assumptions you make as to what costs you take in that 53rd week. And I think this just reflects probably an even allocation even though it's a relatively low trading week of the year.

Okay. We'll go to questions from the conference call now. George, if you don't mind just taking over on that.

[Operator Instructions] Our first question today is coming from Monique Pollard calling from Citi.