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

Okay. Well, good morning, everybody, and thanks very much for coming. I know It's a busy morning for retail. So very good to see you here. Thank you. I mean, it's been an important year for JD, some of which has been visible, some which is not. We've made a couple of important strategic moves with Courir and Hibbett. But behind the scenes, we've also had a huge step forward in our governance, and the -- Dominic would to be able to tell you for hours how much work is going into repositioning and restructuring the finance team and getting the accounts out in a much more controlled and efficient way this year. We've done a lot of work on supply chain, a lot of work on IT. You'll be hearing some of that as we go forward. I mean it's been a big year for political change. Our 2 major markets, we're seeing big political changes in both the U.K. and the U.S. That move with Hibbett in particular, now means 40% of our businesses in the U.S. And we've extended the Mersho option in the U.S. as well, which has helped strengthen the balance sheet. We strengthened our Board with our first U.S.-based Director in Prama Bhatt. So it's been an important year of getting a lot of the things and the infrastructure right. We -- this is a good business, GBP 11.5 billion of sales, profits of GBP 920 million. Strong cash flows. We ended the year with net cash despite the 2 acquisitions that we've made. And we've improved the dividend, and we started a share buyback program. It's really been a very important year and very busy year for the team. I want to thank Regis, Dominic, Mike and the teams for all the hard work they've done delivering, and it gets quite a tricky background at times. But you'll see the numbers today, a good strong set of numbers. And we're pleased with the position we're in as we come into this new year. With that, I'll say no more, but hand it over to Regis to give you a bit more detail.

Thank you, Andy. Good morning. Thank you, Andy. Good morning, everyone, and thank you for joining us. I'm Régis Schultz, CEO of JD Group, and we are also joined today by Dominic Platt, our CFO; and Mike Armstrong, JD Global Managing Director. You will be pleased to hear that having done a company update just a few weeks ago, I will be brief. So you won't have to support my strong French accent for a long time, hopefully. It all starts with the consumer, our customers, the JD customer. Our greatest strength is our focus on customer and our ability to see the world through the mindset of our customer. JD customer is a young adult, the 16-24 years old customer. They move fast. They wear the latest brand and take on new trends quickly. They want more assortment, more access, more choice, more brands and more edge to those looks that blurs the line of sports and fashion. They are looking at global trends. They have TikTok. They have social networks. They are global. They are not monobrand. They want to be free to mix brand, to make sports and fashion, to shop with their friends in a multibrand environment. They are trendsetters and critical for the brand. JD is responding to their need. Our concept is modern, vibrant. We are global. We are multibrand. We are sports and fashion. We are our customer. This close relationship with a young customer give us a strong relationship and partnership with the brand based on key principle. We are a full-price retailer. So we attract the brand in the early stage of development. For example, we were the first major retailer in U.K. to sell On Running. And we'll be the first and only sport fashion retailer to sell Arc'teryx in the fall. We are connected to our customers. So we are first to discover, to capture trends in the key sport fashion city. We are a demanding partner. We curate the offer from the brand. We select product for our customers, and we develop product with them, our SMU. 50% of our apparel and 30% of our footwear are exclusive to us. We are defining range store by store. This gives us the ability to test and scale brands, new franchise, new product better than anyone else. We pride ourselves to be the best partner for the sports fashion brands. This powerful partnership gives us the ability to offer the latest and the greatest product to our customer. This is the foundation of our strong, agile multibrand model. So our strategy. The JD Group strategy is structured around 4 pillars: JD brand first, JD complementary concept, JD beyond physical retail and JD best for people, best for our partner and best for the community. Let me zoom on the achievements of the past 18 months and more specifically to the ones that relate to financial year 2025 and the first quarter of our new financial year group. JD first. Our priority is to accelerate our store opening and conversion program to capture largest share of the sportswear market. We set up the ambitious target to open over 200 new JD stores per year, including conversion with a disciplined return approach, ensuring our store meets our 3 years payback hurdle. In 2025, we opened -- or in financial year 2025, we opened 203 new JD stores. We converted 49 JD store -- store to JD. And we achieved, on average, a payback of 3 years. And to give you more details, our average return on investment on new store is 30% in Europe and 48% in U.S. Out of our strategic market, we continue to spread our capital-light franchise model. In financial year '25, we signed and opened store in South Africa with The Foschini Group. And we switched from joint into a franchise arrangement in Indonesia with our partner, Erajaya. In Q1 2025, we signed an agreement with SSI Group who are also a partner to Zara to develop JD in the Philippines. Turning to Complementary Concept. We have done 2 acquisitions, 1 in the U.S. with Hibbett to broaden our geographic reach in the U.S.; and 1 in Europe with Courir to extend our reach to the more fashion, affluent, older few customers. So the acquisitions give us a double-digit market share in North America and Europe. Beyond physical retail, we have continued to successfully expand our U.S. loyalty program, JD STATUS, in the U.K., in Ireland, in France and Eastern Europe, with more than 8 million active customers. This is a foundation to develop a closer relationship with our customers, more targeted, more personalized and more valuable. We have moved from a multichannel to an omnichannel model. We have developed our ship from store capability to shorten our lead time and to reduce our fee costs with the closure of the Derby distribution center in U.K. This ongoing omnichannel program, a disciplined commercial policy and the optimization of our digital market spend has resulted in a significant improvement in the profitability of our online business to a double-digit contribution margin in financial year 2025. As mentioned by Andy, our supply chain has been a key focus. We hired a very respected and experienced leader, Wim van Aalst, to build our global supply chain and to fix our European operations. We have opened 3 major warehouse, 1 in each of our strategic geography in the last 12 months. We have spent the CapEx. We have incurred the costs, the double running cost to deliver those big projects. We need now to harvest the benefits. So I'm pleased to say Morgan Hill in West Coast U.S. has started operation last week, the same week I was in Heerlen, and I'm pleased to report that we have now started the live test of the automation, and the project has moved to a green status for the first time in 18 months. Best for our people. To serve our people better, we have put in place for the first time in JD a global engagement survey. In the last year's survey, we reached 88% participation from our almost 100,000 people and delivered a record level of engagement. It demonstrates the commitment, the involvement and the motivation of our people to drive long-term success and growth across the group. Best for our community. We have been awarded a place on the Carbon Disclosure Project Climate A List, the highest award possible. Moving to financial year '25. We have faced a slower growth in -- of the sportswear market across the world. The market leader has reported high single-digit sales decline, changed leadership and reset their strategy. We have seen high growth coming from new and emerging brand and less concentration on key franchise. Considering those new market conditions and, as announced in April, it is now the time for us to move to the next phase of our 4-pillar strategy by adapting our plan to focus on organic growth and on profit, leveraging last year's investment to improve returns to our shareholders. Having covered this in detail at the recent strategy update, I would like to pick a few key points to highlight this morning, JD First. In North America, our largest market now, the goal is to increase JD Brand awareness and to fully scale the brand. We are growing fast and gaining market share. Last year, JD Brand delivered an organic growth of 37%. And in Q1, the organic growth was plus 21% and the like-for-like plus 2% for JD Brand in U.S. In Europe, this is the case of refining our approach. We have seen great success in the South of Europe, in France, Italy, Spain, Greece, Romania and Portugal. But it's fair to say that Germany has been more challenging due to high cost and less appetite from the customer on sports fashion. So we will take this learning, slow down our store expansion and direct future investment on the market where we see room to profitable growth. U.K. is a maturing market for us. It is our most established market. Our focus will be on productivity and maintaining our market-leading position by investing in bigger, better and fewer stores, keeping our store estate up to date and delivering the best omnichannel proposition. Turning now to Complementary Concepts. In North America, the focus is to improve our return on space by leveraging our different customer proposition, converting City Gear store to DTLR and Shoe Palace. As a reminder, City Gear has a return on square foot of USD 248 per square foot. DTLR and Shoe Palace has average of around the double as USD 500 per square foot. The 5 pilot stores have shown strong uplift in both sales and profitability post conversion. Having completed the Courir acquisition, we will leverage a strong position in France and use JD's strong position in Spain and Italy to accelerate Courir expansion in those markets. We have entered successfully Italy in April, with 2 Courir stores with promising sales. In Spain, Portugal and Greece, we are a leading sporting goods player, and we are well positioned to develop our market share. Beyond physical retail. It's all about leveraging our investment in supply chain, infrastructure,,in control environment, in cybersecurity and deliver efficiency. It's fair to say that fixing the past on the investment in our people, in our infrastructure and in a governance has both all taken longer and require more cost than we originally anticipated, but they are nonnegotiable, as they underpin the sustainability of the business. Technology infrastructure and cybersecurity are critical to protect our business and our customers. We are applying the principle of whatever it takes on this with key initiative underway across the following areas. ERP resiliency. We have strengthened the stability and scalability of our ERP system to better support our omnichannel and international growth ambition. IT control. We would continue investment in our IT control framework, ensuring that we operate at a standard appropriate for the scale of our business. It's critical for our cyber resilience, for our audit readiness and compliance with evolving regulatory requirements, for example, Provision 29. Digital. We have been forced to rebuild our e-commerce experience through a composable architecture due to security. The JD U.S. website is now live on the new commerce tool platform, with 50% of the order last week on the new website and moving to 100% at the end of this month. In U.K. and Europe, we will launch a new platform at the beginning of next year to avoid any disruption during the peak season. Store network resilience. Our SD-WAN rollout across European market is nearing completion, enhancing the stability, performance and security of our store network. HRIS transformation. Our new HRIS platform, Dayforce, is now live. We have paid the people last week -- last month in the U.K., enabling better workforce management and better scheduling. Finance. We have implemented a new consolidation system, a new tool to manage our lease and we are moving to Workday for all our U.S. business in finance and HR, leveraging ABT expertise. In parallel, we continue to invest in our internal cybersecurity function to protect our business and customer data, particularly important given what happened in the market in the recent weeks. A lot on our plate, as Andy said, as we are playing catch-up with the past underinvestment. And it's a lot, of course, in our P&L of this project that are largely delivered through SaaS-based solution. As such, the associated costs are predominantly OpEx rather than CapEx, as they were previously, resulting in a short-term impact to our P&L. We estimate that those investments have contributed approximately GBP 60 million in OpEx over the last 2 years, with a portion of this continue to spend over the next 12 to 24 months. Turning to our priority for financial year '26. Looking at this year ahead of us, I have 3 clear priorities. The first one is trading. The macro environment has changed in the last 6 months. And the level of incertainty has definitely impacted consumer confidence across our different markets. Meanwhile, sportswear is a resilient market on a growth market, and we have seen that during the last year. As we said consistently, the major indicator for us is unemployment, and we have not seen any increase except for us in France yet. In terms of geography, North America is more challenge. Our Q1 sales have been impacted, partly due to the timing of the release of HYBE products, the high level of promotional activity in the market, especially online from struggling retail competitor and partly due to macro environment. Same challenging performance in APAC, where we have seen the biggest impact of tariff and of the earthquake in Thailand. Europe has been very -- has been positive, in line with our expectation, and we are very pleased to see the U.K. trends picking up more recently. All in all, we are in line with our expectations for Q1 with a good performance offline and a more challenging online. We are continuing to be very disciplined with a fully omnichannel price policy, which affects negatively our market share online, but with a positive impact on our business margin, up 40 basis points, if I compare like-for-like and contribution. Second priority is the U.S., the Hibbett integration work and delivering the majority of our GBP 25 million synergy in this financial year, with a view to generate more over time, plus the conversion of City Gear store and DTLR with a margin milestone at the end of the first half with a takeover from DTLR management of the City Gear stores. Third priority, our supply chain project, especially the automation of Heerlen, so we can stop the dual running cost to improve our European profitability. By fall 2025, we will start to use automation to increase our capacity, cut downing time, reduce cost and to stop gradually using our U.K. warehouse, an old European facility. Then in 2026, we will start to use Heerlen for direct-to-customer order to deliver faster shipping time. In U.S. Morgan Hill will be our first multi-fascia warehouse in the U.S. on the West Coast at the end of this year. I'm pleased to say that we have started operation last week for Shoe Palace only, and we are on plan to be live for JD Finish Line at the end of 2025. This will unlock improvement in the speed to market for all our West Coast stores. Moving our other warehouse in U.S. to become multi-fascia will deliver significant cost savings in the future. Let's go to the questions that you had last time and we didn't answer, which is tariffs. The recent announcement in respect of tariff continue to evolve. Elevated tariffs have the potential to impact our business in 3 areas. First, there is a potential impact on our goods not for resale, essentially our stock fixture, our gondola and our own brand and licensed products. It is not a significant part of our business. It represents less than 10% of our U.S. revenue, and we had already taken action to diversify our sourcing, mostly around Egypt, which has no tariff. The potential impact of tariffs on both is less than $10 million for the group. Second is the impact on our brand partner. As you know, they source most of their products from Asia. We expect mitigating action to be taken across the supply chain and mainly across the manufacturer to ensure that price remain as competitive as possible for consumer. As a remainder, inflation is usually a good news for the retailer. Third, there is a macro impact on the economy and the consumer. This will generate inflation for the U.S. customer and has created uncertainty for the world, the manufacturer and the global economy. This is much more challenging. But it's too early and difficult to quantify the potential impact on our customers. We have not seen any direct impact in the U.S. for the time being. As a conclusion, I'd like to close my section with a summary of our investment case. JD Group operates at scale in a growing market. We have reached 10% of more market share in key geographies. The market grew last year as it has done consistently, supported by ongoing casualization and activity trends. But it's growing less quickly than we have seen previously. We are well positioned to grow organically in North America and Europe, as our market share is around 10%, and we are far away from having the physical footprint to cover the market. Why I am confident that we'll achieve this? Because of our deep connection with customers, a strong brand partnership, a profitable omnichannel proposition and our agile multi-brand business model. Our model makes our business unique and resilient. We have strong store economics. We have a proven ability to drive and respond to trends, and we have operational excellence. We are adapting to a slower market growth with a refined organic growth strategy and a focus on delivery efficiency from our past investment. This puts us in a great position to deliver profit growth ahead of sales over the medium term. As a result, we are a highly cash-generative business with a strong balance sheet. With disciplined capital allocation, we will continue to invest in growth while delivering improved return to our shareholders. With that, I will not hand -- I will now hand over to Dominic to go through our financial year '25 financial results. Thank you.

Good morning, everybody, and thank you, Regis. As Regis said, having updated you on the April 9, the majority of today's presentation will be on the FY '25 numbers. So I'll start with a key summary of the financials. Revenue of GBP 11.5 billion was up 10.2% on the prior period and up 12% on a constant currency basis. I'll walk you through the bridge on revenue on the next slide. Gross margin was 47.8%, down 20 points on last year, but this reduction was entirely due to the mix impact from acquiring Hibbett and Courir. So flat underlying gross margin. A robust performance and a reflection of our continued commercial discipline in the promotional market. Turning now to operating profit. We introduced an update to how we report operating profit at our April update. These numbers are on that new basis, with operating profit, including lease interest. Under IFRS, lease interest is treated as part of financing costs outside operating profit. We've included this lease interest charge within our definition of operating profits, but we believe that including all property-related costs gives a truer picture of the operating profit margin of each part of the business than the pure IFRS 16 operating profit would show. We provided details by segment and region for the current and prior years in the appendix. At a group level, operating profit before adjusting items and after interest on lease liabilities was up just under 1% on a constant currency basis. A solid performance given the market volatility and the amount we have again invested in operating costs during the year. With financial interest increasing year-on-year as a result of lower net cash following the acquisitions we made in the year, our adjusted PBT was down 3% on a constant currency basis. And in line with this, earnings per share were down a similar amount. We reiterated our progressive approach to the dividend when we updated on our capital allocation priorities in early April. And in line with this, we are proposing a total dividend of 1p per share, up 11% on last year. And finally, we delivered operating cash flow net of lease payments of over GBP 1.2 billion, demonstrating yet again the highly cash-generative nature of our business. Now turning to our revenue bridge from last year to this. There are lots of moving parts, and it's a reflection of the scale of change we've been undergoing in terms of M&A and our store expansion. The left-hand side is about rebasing FY '24, the FX, the impact of moving from our 53-week comparative period to align with this year's 52 weeks and sales from businesses sold in FY '24. That gives you your base of just over GBP 10 billion. You can then see the 0.3% like-for-like growth and the 5.5% growth from new space that we delivered in the year to take us to the organic GBP 10.6 billion revenue number. Then we have the GBP 850 million revenue contribution from Hibbett and Courir in the year, taking us to GBP 11.5 billion in total. We built a very well balanced revenue mix over time. Regionally, 95% of our revenue comes from North America, Europe and the U.K., with North America our biggest market, now at a pro forma 40% when assuming a full year of Hibbett. The changes in our regional mix give the different channel and category mixes by geography consequently influence changes in those 2 categories on a group basis. So in terms of channel mix, our priority is to have a fully flexible omnichannel proposition. We want to offer our customers everywhere in the world a seamless service for purchasing, delivery and return, whatever channel they choose to use. So within that omnichannel proposition, stores have increased their share by 4 percentage points to 79%. This reflects both our store rollout program, where store-led sales predominate in the shorter term before online sales develop in a new catchment area; and the Hibbett acquisition, which has lower on sale online penetration in its sales. Consequently, online penetration is down 3%. In addition to the impact of store rollout and acquisitions, the reduction in online share of mix also reflects our disciplined trading approach, focus on a full price offer and ensuring all sales are profitable. The promotional market we have seen over the last 12 months has been more heightened online. And so in some markets, we have actually stood back on sales where it doesn't make economic sense or undermines our long-term market positioning. Turning to category. You can see how our multi-brand model really comes to play with growth in both footwear and apparel. Despite the challenging marketplace, like-for-like footwear growth converted into 3 percentage points of share growth this year, taking footwear to 60% of our mix. Always focused on evolving trends, we've been able to switch our focus successfully from retro basketball to retro football and skate terrace styles through the year. Footwear also benefited from higher mix in the acquired businesses. Apparel share was broadly in line with last year. Other category lost share due to the contribution from noncore businesses that we disposed off in FY '24. So now let's look at the contribution to FY '25 from our segments. All segments achieved organic sales growth in the year. And reflecting our JD First strategy, this growth was led by JD with 7.1% growth. From an operating margin perspective, JD was impacted by the ongoing investment in our tech and supply chain infrastructure, our control environment and cybersecurity. Complementary Concept margin was impacted by the acquisitions of Hibbett and Courir, which have lower operating margins. Sporting goods and outdoor led the way on operating margin, improving by 2.1 points due to the disposal of the loss-making SUR business in FY '24 and our business moving from a loss in FY '24 to a profit in FY '25. Now turning to our geographic regions. All achieved organic sales growth in the year other than the U.K. We saw strong growth in Europe and the U.S., reflecting our strategic focus and investment on growth opportunities in those markets. From a margin perspective, North America margin was down 60 basis points, impacted by the lower operating margin in Hibbett. U.K. margin was also down, reflecting the year-on-year decline in revenue as our ongoing -- as well as our ongoing investment in infrastructure controls and security. Turning to Europe. We saw an improvement in margin, reflecting disposal of the loss-making SUR business, scale benefits more than offsetting the investments and costs we are incurring as we work on our supply chain. As that program comes to an end in FY '27, we will see the operating margin in Europe step forward towards the higher single digit levels that we have elsewhere. Cost dynamics such as inflation, salary increases and the investments we've been making in the business have created headwinds for our operating margins and profits. This slide takes you through movements in the cost base. Starting again from the left, the GBP 3.9 billion basis after adjusting for the FY '24 GBP 4.1 billion cost base for week 53, FX and cost associated with businesses sold during FY '24. I've left these bars out to make the rest of the chart readable. The first 4 columns are the like-for-like cost changes during the year. They totaled 1.6% increase. This is ahead of our 0.3% like-for-like growth and has contributed to our decline in operating profit margin in the year. But you can also see in here that the key drivers of the GBP 60 million increase in costs from our investments in tech and supply chain infrastructure. Outside 2 these areas, we've almost managed to keep other like-for-like costs flat, driving efficiency to offset inflationary pressures across staff and other costs. After that, you can see the increased costs in the business from both new stores and acquisitions. When you add it all up, our cost base was GBP 4.5 billion, which is an increase of GBP 659 million on the rebase level. As we look forward, improving profitability through efficiencies and synergies from the investments we have made is a key priority. Some of the cost increases we've seen will recur, such as licenses for new systems and our ongoing investments in things like cybersecurity, but there are efficiencies to deliver and double running costs will fall away. We've talked about these benefits coming in the past and implicit in market expectations for market recovery in the medium term. To give you a bit of color, in the current year, as Regis said, we will start to see synergy benefits in the North America around 1/2 to 2/3 of the $25 million we announced. And looking to FY '27 and '28, in addition to the synergy benefits, we expect to see over GBP 20 million of incremental benefit as tech and supply chain double running costs come to an end. I want to spend a few minutes on adjusting items. They're often lost in an appendix, but at just over GBP 200 million, they're worth an explanation. There's more detail on them in the statement, but they fall into 4 main categories and they're a function of the major developments in M&A that we have been undertaking across the group in the last few years. So first, we have impairments, either noncash and reflects a one-off period of restructuring and realigning the group to make it fit for the future. Next, we have corporate activity. This reflects gains, losses and costs associated with the material level of M&A we have been undertaking. In the current period, this all adds up to a net gain, with the gain from the sale of the majority of our stake in Applied Nutrition, more than offsetting other costs. It also includes $8 million of costs as we start the integration program in the U.S., and this will continue as we deliver synergies. As a reminder, we have said that we expect GBP 25 million in synergies at a cash cost of around 1x this, but we're looking to deliver more, and we'll update in due course. Next, we have the noncash movements in put and call options. This is due to the movement in the present value of a liability associated with the buyout of the noncontrolling interest in Genesis, our North American holding company. These movements will continue until we complete the buyout in FY '31. And finally, there is the noncash amortization of acquired intangibles. It's become standard practice to treat these charges as adjusting items, so we have come into line. We will occur every year. The accounting principles will remain in place. It's important to note that the vast majority of these charges are non-cash. Only the costs related to corporate activity have cash elements. And as you can see on the slide, in the year, this was a sizable net cash inflow with the cash proceeds from the Applied Nutrition divestment more than offsetting other M&A-related costs. One of the core strengths of JD is cash generation. A key starting point on this slide is the GBP 1.2 billion operating cash flow net of lease repayments. After that, the working capital outflow and CapEx reflects our heightened level of investment as we invest in building our store space and the supply chain infrastructure, particularly in North America and Europe. With tax netted off, we delivered net cash flow before financing of GBP 339 million. To complete the chart this year, we've seen 2 significant acquisitions, and that resulted in an overall net reduction in our cash balance of GBP 980 million. Notwithstanding M&A activity in the year and reflecting our strong underlying cash flow generation, we have maintained a strong balance sheets. On a pre-IFRS 16 basis, we have no leverage, and we ended the year with net cash of GBP 52 million. With lease liabilities of just over GBP 3 billion, up GBP 575 million on last year, predominantly due to the Hibbett and Courir acquisitions, we have IFRS 16 net debt of GBP 3 billion. With IFRS 16 EBITDA of GBP 1.8 billion, our IFRS 16 net debt to EBITDA is 1.7x, well within investment-grade metrics. With no M&A in the pipeline and CapEx trending down over time as a percentage of revenue, the pre-IFRS 16 cash balance will grow materially over the coming years, giving us headroom to meet our future commitments as well as investing in the business and/or returning additional cash to shareholders. I'll return to this shortly. Now let's look at a couple of elements of our balance sheet. Firstly, inventory, here, we've chosen to show you the organic inventory position. That's excluding the impact of M&A as you get all the Inventory on acquisition at the year-end, but in the case of Hibbett, only 6 months of revenue and for Courir, only 2 months of revenue. As you can see, on this basis, inventory went up just GBP 64 million in FY '25, taking the share of adjusted revenue, that's stripping out the acquisitions to 15.6%, broadly in line with the previous year. Given the challenging market conditions and our limited participation in elevated market promotional activity, it is a strong performance. It's worth noting that we finished the year with GBP 364 million of inventory from Hibbett and Courir. That's a higher share of revenue the rest of the group. Now that they are in the group, we are working with them to bring their inventory more into line with what we would expect for businesses of a similar scale. On to CapEx. Year-on-year, CapEx was down GBP 15 million to GBP 515 million or 4.5% of revenue. This reflects a GBP 41 million reduction in supply chain CapEx as we pass through the peak spend on our supply chain investment program. The biggest element of our CapEx is property. You can find a breakdown by region in the appendix. The property CapEx is up year-on-year, reflecting the first year of our accelerated store program with unsurprisingly all of the increase from GBP 309 million to GBP 346 million in our key growth regions of North America and Europe. So we have a number of -- what commitments do we have? And how are we financed? Essentially, outside of the day-to-day needs of the business, we are committed to buying out the 20% Genesis noncontrolling interest in 2029 and 2030 across 2 equal tranches of 10%. The buyout remains subject to a GBP 1.5 billion cap. The agreement to defer the put and call option was made after year-end. And so the FY '25 balance sheet value of GBP 831 million reflects the old agreement, which is an exercise period from FY '25 to FY '28. We'll update with the new agreements at the half year, but you should expect to see an uplift of around GBP 250 million in the liability, reflecting in part the requirement under IFRS to discount the liability at a risk-free rate. If we applied our U.S. WAC rate, the liability will be broadly unchanged. Turning to financing. We have existing facilities of around GBP 1.5 billion across 3 group facilities, all due to mature during FY '27. Those facilities are our GBP 700 million revolving credit facility, which had GBP 36 million drawn at the year-end; an asset base lending facility in the U.S. of $300 million, which had $15 million drawn; and the GBP 1 billion term loan we took out as part of the Hibbett transaction. This has GBP700 million drawn at year-end. We've already kicked off refinancing each facilities, and we are well progressed. We will provide an update on the outcome with our H1 results. These next 2 slides are basically taken from our April 9 update, but I felt it was important to remind you of our capital allocation priorities and how we see our updated strategy driving shareholder value in the future. On our priorities for capital expenditure, we start with organic investment to fund CapEx and working capital. As we explained in April, we will see our CapEx trending down to 3% to 3.5% of revenue in the coming years. We then need to ensure that we maintain headroom for the Genesis noncontrolling interest buyout in FY -- in 2029 and 2030. We then have our progressive ordinary dividend, a demonstration of which is the 11% increase we are proposing in the FY '25 full year dividend. After this, we have optionality between increasing investment in the business, further M&A or delivering additional returns to shareholders. At all times, we'll test investment and M&A to ensure it improves our return on capital. But at the moment, with no material M&A in the pipeline, the best use of any excess cash generated is to hand it back to shareholders. And in line with this, we commenced an initial GBP 100 million share buyback program after our April update. And so how does our updated medium-term plan deliver better shareholder value going forward? We'll start with growing organic sales ahead of the market over the medium term, driven by both like-for-like growth and new space growth, and with the latter expected to be around 3% to 4%. Beyond FY '26, we will start to leverage the investments we have made in our people and our infrastructure and drive efficiencies across the group, delivering profit growth ahead of sales over the medium term. The component part of this will be a stable gross margin of around 48%, supported by operating leverage from investments such as the new Heerlen distribution center, acquisition synergies, mainly through the back office integration in the U.S., tight cost control and productivity improvements across our support functions. Improving profit will lead to stronger cash generation. We will continue to invest to grow the business, but we will see our CapEx trend down as a percentage of sales, improving our cash conversion. And we will utilize our capital-light franchise model to expand outside our core markets. And we will target improvements in return on capital employed. Finally, with stronger cash generation, we have better optionality on how to use it. We will maintain a strong balance sheet and headroom for the Genesis plus and core commitments. But beyond that, we can enhance shareholder returns through our progressive dividend and returning surplus cash to shareholders. Regis has already given you an overview of our Q1 results, so just a quick update on the numbers. Overall, trading has been in line with our expectations within what continues to be a challenging and volatile market. Pleasingly, all regions delivered organic growth, with the overall 3.1% organic growth, reflecting a 5.1% uplift from space growth. While like-for-like sales were down 2%, Europe and the U.K. saw positive like-for-like sales year-on-year, and North America and Asia Pacific were down. North Am PAUSE was impacted by promotional market and delayed product launches compared with last year's schedule. Our gross margin in the period was 48.2%, in line with last year. On an organic basis, as Regis said, and excluding the impact from the acquisition of Hibbett and Courir, gross margin was 48.6%, up 40 basis points year-on-year, as clear evidence of our continued discipline to trading approach. So to conclude, let's turn to the outlook for FY '26. In the first quarter, the market has been challenging and volatile as we expected. And at this early stage in the year, we're not planning on that market environment changing. In terms of tariffs, as Regis explained, we have limited visibility on the overall impact. The direct impact is not material, but it will take time to be able to quantify the impact from brand partners and the wider impact on the U.S. consumer. So therefore, not possible to have a view on the overall impact of tariffs on the outlook at this stage. What we can do, though, is to double down on the things we can control. We will add over 200 new and relocated stores. We will see GBP 1.1 billion to GBP 1.2 billion of incremental revenue, with a full year from our new acquisitions. We will aim to maintain gross margin, and CapEx will be around GBP 500 million. And finally, we expect profit to be slightly more weighted to H2. JD will continue to trade in disciplined way. Alongside that, I'm focused on controlling operating costs and delivering benefits from both our key investment programs and our U.S. synergies. We will continue to mitigate cost and wage inflation. Remember, we have a circa GBP 30 million headwind from National Insurance and National Living Wage in the U.K. this year. You'll start to see synergy benefits coming through in the U.S. this year. And into FY '27 and FY '28, we will see double running costs fall away, as some of our key projects come to an end. It's taken longer and cost more than we anticipated to address some of the infrastructure and control fixes we need to put in place. Over the last year, we have worked hard to ensure these key programs are on track to deliver the operational and financial benefits we expected. Regis has updated you on many of those, including the supply chain projects. Closer to home for me, as Regis said, yesterday, we launched our new group consolidation system. It's very exciting. And we went -- we will be going live with a new IFRS 16 lease system in the coming months. These are just 2 small steps, big projects but small steps of many that we're putting in place to drive more efficiency and control across the group. And the added benefit of these 2 projects, in particular, is we should be able to report to you earlier than we do at present. All going well, in the next 2 years, we'd like to be reporting our full year results within the end of our first quarter. So thank you for listening. I will now hand back to Regis for Q&A.

Lot of questions. Where we start? Not the French. Too much of French accent.

Jonathan Pritchard at Peel Hunt. Usual 3, if I may. I understand there was a little bit of -- a bit less sort of high heat in the first quarter. But from the bits and bobs of launches, et cetera, new product you saw from the industry leader, was there something there to encourage you that the pipeline, both short and long term, is coming back, getting a bit more exciting? And then your thoughts on your relationship with the brands in a relative perspective in the light of the get together of DICK'S and Foot Locker, where does that leave you in the pecking order, et cetera? Do you think anything will change at all? And then you mentioned brand awareness. Do you have a score or a number for that? And if so, is that -- are you happy with it? And is there a target for it?

In the U.S.

Yes, please. Yes, yes.

Might be the first one.

Yes. I mean, I think we spoke a lot about product pipeline a few weeks ago. We feel pretty good about what's coming. We're seeing Nike start to turn the corner and -- particularly in the U.K., particularly in menswear. We've seen good momentum with ASICS, New Balance, On. Again, things we've already mentioned. I think the underlying -- I think the market generally, though, is still quite challenging. So that's the only slight concern, but we're always optimistic about the product and our relationship with the brands to get the -- exactly what we need from them to serve what our consumers are looking for. I think when it comes to brand awareness, again, I think we spoke about this. Last time, our brand awareness in the U.S. across the whole market is still fairly low. We think it's aided -- it's about 25%. I think we really are very focused on our key markets, which are the Northeast of the country and in the South and California, in particular, because that's where the population is the majority, the density in population anyway. And we're tracking really well in those markets. We're seeing about 50% brand awareness in those markets. So it's still a lot to do, but it's definitely improving, and the store rollout program is having the biggest impact on that for sure. I think the other one is big.

Yes. So I think that -- and I will enlarge your question. I think we see that a positive. I think that competing with a distressed retailer, not knowing what they are doing, it's not a great place to be. And I think we have seen that through discounting -- erratic discounting at the end of the quarter, trying to buy and sales and all that stuff. I think that we respect DICK's. They are a great operator. They are a full-price operator. So I think that it will -- I think it will put the market in a much better position. And I think that having a competitor who have the balance sheet to invest in store, to invest in the proposition, to be disciplined, I think it's the best thing for the market. And if it's good for the market, it's good for us. And having a competitor -- a good competitor is always great. It forced us to be better and to push us. So I think we look that as a -- really as a positive for the market in total. I think that having really -- that should drive a lot of discipline in the market. And even I think it will -- to your question around access to product, I think it will reinforce the need to separate or to have a clear distinction between sporting goods and athletic leisure. And having DICK'S been -- having the 2 offer, I think, will simplify and clarify the market. So we see that all of that is a positive for us.

William Woods from Bernstein. 3 questions, if I may. Just a follow-up on the Foot Locker and DICK'S merger. Any thoughts on the international investment and how that might change the dynamics in Europe? The second one is obviously promotions remain -- the promotional environment remains a challenge for you. Can you give us any confidence that the promotional environment is softening or could come to an end towards back-to-school? Or any kind of color that you can give there? And then the third question is just on the Complementary Concepts. Any color you can give on the weakness in Q1 in terms of brands, products, customers?

Yes. I think on the first question, it's not for us to answer the question. So I think, please ask the question to DICK'S because I think I don't know. So I think I don't know more than you know. On promotion, I think we have seen different things. I think what we have seen -- the first thing is that on the D2C base, I think it's -- what has been announced has been done. So it is much more disciplined, which is a good news, I think, for the market. So we have seen that, and it's definitively happening and across all the brand, to be fair. But I know that we were referring to one specific one. So I think that it is happening, and they have done the job and -- as they said. And it has been more promotional, and I mentioned, I think, mainly around more struggling retailer that has been taking the opportunity to be more promotional online, certainly have had some inventory issue or inventory to -- so that will, I think, will continue. What will continue, we have seen more product in the outlet -- in D2C outlet, too. So I think there is a mixed part. So I think we have seen more discipline online from D2C, which I think will help a lot for the end of the year because last year, it takes us by surprise, and it impacted us in -- during the peak trading time. So that's a given. I think what will happen to our other retailer, it's difficult to say. But I think that we should see, especially with the merger, I think, less pressure on short-term trading for Foot Locker, which should help them to be more disciplined. So that should be a plus. There's still product in the marketplace, but I think it's going to a much better place. So it should ease, but let's wait and see because we don't want to overplay that. Q1, and I think that what we have seen in Q1, as you rightly saw, U.S. is very interesting to go into the details of it. So if you take Q1 U.S., JD has been up 2% like-for-like. So that's JD as a brand. I think Finish Line has been down 17%. Finish Line is mostly online, and it has been impacted partly by what happened on the promotion in the market and partly by the fact that we are underinvesting because we want to develop JD. So it's a normal thing where we're getting to the end of a story. On our complementary brand, Shoe Palace, for the first time has been really impacted by the immigration policy. As you know, Shoe Palace is targeting the Hispanic customer. And I think that we have seen a huge decline in traffic, which I think is telling. I think the online business has been okay, so compared to the other one. So you can see definitively the impact on the immigration policy on Shoe Palace. I think the big impact for all our business has been the fact that key HYBE product launch that usually we have in April has been postponed to May. So that is a 1% to 2% impact on the like-for-like of U.S. So I'm not really nervous about. I know the market react negatively on the U.S. number, but I'm not nervous. I think JD is plus 2% like-for-like with a 1% to 2% impact on the HYBE product. So I think good place. We are suffering with Finish Line. That's sort of normal, I would say. It's coming to this transfer to JD. And we have been impacted by -- on Shoe Palace from the immigration, but we see the last week is a little bit better. So that's the story in the U.S.

And just any comments on Hibbett?

Hibbett has done well. Hibbett is ahead of expectation for Q1. Same impact on the HYBE launch because that's where it creates the excitement. We had a good tax period. And after that, no launch of new products, which creates no traffic, which has impacted our business.

So we've got 2 questions on the conference call. Should we take one of those now and then come back to the room?

Your first question comes from the line of Kate Calvert of Investec.

A couple from me. The first one is on your distribution. You've talked obviously about progress you're making in Europe and also the U.S. Do you think you need to go back and put some more investments into Kingsway in the U.K.? My second question is just on capital allocation. What level of cash do you think you need to hold over the next couple of years at year-end to feel confident about the Genesis option? And therefore, sort of give an idea of what sort of level you need to hold before you might think about returning more cash to shareholders.

You take the second one? I'll take the first one. So Kingsway is our warehouse in U.K. Great operation, been there for a long time. I think that we are starting to reinvest in Kingsway, but it's -- we're talking about GBP 10 million to GBP 15 million per year to continue to have something that is fit for purpose. So it's not the magnitude of what we have put in new warehouse. So it's a normal type of investment.

Yes. On the Genesis option, just a reminder that, that is now deferred out to, I think, payments in 2030 and '31, so more than 5 years away. In terms of how we think about it, Kate, rather than holding cash specifically about that, it's about making sure we have the leverage headroom for that. And if you go back to what I talked about earlier on, on the IFRS 16 leverage, 1.7x at the year-end, that gives us headroom with investment-grade metrics to cover off the Genesis option. We don't have a hard and fast leverage target, but we want to operate within investment-grade terms, which is around 2x. So if you think about it in those terms, from a good old-fashioned net cash perspective, which older people like me are more comfortable with, I think sort of maintaining a balance sheet where we have at least net -- some net cash rather than carrying net debt is probably where we operate. But it will fluctuate a little bit from time to time depending on investment phasing and other things.

One in the room, actually.

Ashton Olds here from Redburn. I've got 3 questions. My first one is just on the online margin. You mentioned that it's a double-digit contribution margin now. How much of that is operational improvements versus sort of not participating in discounting and gross margin improvement, I suppose? And then the second question is just on your conversations with trade partners. Nike -- there was reports overnight that Nike is looking to increase prices. And then equally, Under Armour mentioned last week that they were thinking about sharing some of the pain with their distribution partners. So any learnings over that based on your conversations with trade partners so far? And then I guess the final question. Dominic, you mentioned that you wanted to sort of bring down the inventory levels at Hibbett and Courir. Could you speak to how they manage inventory relative to you and the potential working capital inflow that you could achieve there?

Yes. So online margin, I think it's not so much -- so our margin has been really flat or a little bit up. It's more around the operational things that we have done to -- but we have been always, as Dominic mentioned, very disciplined around the same pricing policy between online and offline, and we have done a better job of doing that more and more. And the other thing which is important for us is that we keep this discipline in terms of profitability. So that's where it is. So it's more operational improvement than margin improvement on our online. If you take our trade part, I would say you need to ask them the question. I think that depending on the market position, the market share and all that stuff. So I don't think it's for us to answer the question. I think that they all -- the good thing is that learning from COVID, there have been no erratic movement. We stopped the order and all that stuff. I think they have been continuing to do what they do. They have been absorbing some of the tariffs that they had to. And I think for the time being, it has been really well managed, and we have not seen any impact on our margin. In terms of the last question, I think the big difference, and I think it's part of what makes JD so unique is that we -- it's our buying discipline in terms of especially how we play, and I think Michael can go in more details. But around width versus depth. We are taking more depth and less widths than they are. So that means that your stock turn is better. That's...

Yes. We just have a very disciplined approach to stock planning and buying, especially when it comes to option counts and density. So we'll just take some of those learnings and share it across the group as we have done with all the acquisitions that we've made, and it's always been massively beneficial.

I think in terms of specifics, the group is just about -- just under 16%. There are lots of different measures, but if you just take it as stock as a percentage of revenue for the full year. On a pro forma basis, Courir and Hibbett were more like 18%, 19%, okay? They are -- the target in the group really is a function of the scale of the business as well. Some of the businesses have higher stock just because of the scale or the geographic coverage. But if we can bring it more into line with the group, you're talking about a few small tens of millions of pounds. It's not massively material, but important from a trading perspective and can actually play a better margin rather than cash on -- on cash benefit on stock.

It's more impact on the margin, yes.

Should we go to the other online one? We've got one question still on the conference call, I think.

Your next question comes from the line of Monique Pollard of Citi.

Three from me, if I can. The first was just if you could sort of give us some color on whether you think there's more that you could be doing in terms of buying the right brands to be improving that like-for-like performance. I'm just conscious that some brands that we've seen report over the past few weeks have been delivering double-digit mid-teens, high 20% growth, the likes of adidas, On. Obviously, you mentioned you'll be getting Arc'teryx in the fall. So just whether there's more active management that can be done to make sure that the assortment can drive better like-for-likes going forward. The second question I had was just on the guidance. Obviously, you're saying that you're expecting the weighting of the profitability to be more second half. And I understand that in the context, obviously, of the National Insurance and the National Living Wage impact in terms of the cost base being more second half. But also isn't there the risk, given you flagged the sort of low visibility on the tariff impact that the U.S. like-for-likes could deteriorate in the second half and then you could see some operational deleverage there that meant that you don't see that more second half weighted profitability? And the final question I had was on North America. In the first quarter, the difference between the organic and the like-for-like was quite material. Just wondering if you could give us any breakdown of how much of that was store openings versus conversions, please?

Okay. So I think on the first question, I will start, and I will let Michael complete my answer. I think on guidance, Dominic will do it. And North America, I think you covered it, the organic. I think that, don't forget, when brands are reporting quarterly number, they are reporting -- there is a gap between what they report and how we report because they are selling to us. And so that doesn't reflect directly, and it doesn't reflect the promotional activity happening in the market because most of that is stock that was bought before. So I think that it's difficult to put the 2 together. We believe we have the best access and the best range. Perhaps, we have it before the other, so we benefit from it before the other. But if you take our growth last year, our organic growth is plus 6%. The market is around plus 2%. So we are doing 3x the market or 2 to 3x depending on how you take the market. But frankly, our performance versus the market is a much higher performance. So I feel that we are at the best of what we can deliver for our customers. So I don't feel that we are missing something. And I think that we are doing a great job to have the right brand and the right product for our consumer.

Yes. I'm picking up the guidance question weighted to half 2. First thing I'd say is, as we said in April, our guidance excludes any impact from tariffs because it's just too early to have a view on that. And I think if we did say anything on that, we would be wrong. So putting that to one side, the second half will benefit from -- yes, we do have the National Insurance headwinds, but we'll benefit from starting to see things like the U.S. synergies coming through. We will also have a full half of Courir, which we didn't have last year. And if you just think about it in the first half, whilst we've got a full half in H1 of Courir and Hibbett, H1 is always a quieter period, and we've got a full half of interest for those acquisitions. So net-net, they don't really add a huge amount to the overall profit in the first half year-on-year. So that's how you can see how, if you like, the jaws can open a bit more into the second half in this year. So those are the sorts of factors, Monique, that affects our sort of view that the second half will be better. I think the third thing is if you just look at comparatives last year, last year, Q2 was quite strong. Q3 was weak. So if you just take some of those into account, if we look at being -- as the market expects negative like-for-like through the year, you'll just see that flowing through in a slightly different way. On the point on organic, I think the best guide to use for that is if you look at our store detail in the appendix, Monique, you'll see about 2/3 comes from new JD space and about 1/3 from conversions. It won't be exactly that because there'll be slightly different stores, but I think it's as good a rule of thumb as any.

I can touch a little bit on the buying side. I mean, as we mentioned before, we have a very agile model, and we benefited massively last year from the great work adidas, in particular, have been doing. But also on, On Running, New Balance, we have absolutely benefited from that. I think as I've said, the market is still very challenging. Traffic sessions are a challenge. So there is generally a softness across it. But in terms of the brands that you mentioned, we've absolutely benefited from that. And again, I think in the last presentation, we went into a little bit more detail in terms of how the product assortment has evolved over the kind of last 3 or 4 years to adjust to the changing marketplace and the dynamic marketplace that we operate in. And I think we are as effective at being able to kind of pivot and maneuver as anybody in our space.

Okay. I'm conscious everyone needs to get away soon. And we have more in the room.

Alison Lygo from Deutsche Numis. Could you talk about how the buying kind of inventory management is working across the different banners in the U.S.? So you talked about Morgan Hill being the first kind of multi-banner warehouse that you've opened. Just interested in terms of do you still have very separate buying teams across those banners. Like how do you go about thinking about those different inventory pools?

Yes. So it's not inventory pool. So it's a very important question. So we are keeping the buying team for each fascia. And it's really important because we want to have a different proposition. That's what happened to another competitor where they have 1 buying team for 2 fascia, and they end up by having the same offer and no differentiation. So there is -- so each of our fascia have their own buying team, and they own stock. So they own the stock. The only thing what we are doing with the supply chain is to make sure that we can leverage the location of the warehouse. So the warehouse can handle stock for 2 banners, 3 banners, and that's to leverage the spread of U.S., especially for Hibbett and -- but as you know, we have regional brand with Shoe Palace and DTLR, and we have national brands with JD and Hibbett. And that means that we can have the best of the 2 worlds, have strong regional hub and use those hubs for the national brand to save some cost and to be quicker. But it will be the -- each of the brand will continue to own their stock, and there is no massification of stock.

Just one question really. On the guidance, I would say, on consensus, you said in April, you were happy with consensus at minus 1.5% to 2% like-for-like for the year. I think you said also PBT, you're also happy with over GBP 900 million. Since then, you've said today several million pounds negative from the duties on your own business. I think FX has gone against you. So how happy are you with consensus today, how it has eroded? And if you could give us elements of the bridge from last year's PBT to this year.

Yes. So good question. Look, it's only 6 weeks since we did our April update, so not much has changed, and Q1 is in line with our expectations. In April, the consensus range was GBP 830 million to GBP 980 million. So a big number on our profit and reflected, as I said at the time, the fact that there were a number who hadn't updated at that time. We were comfortable -- the midpoint then was around GBP 920 million. We're broadly comfortable with that ex tariffs, okay? Since then, as people, as I've said, expected to happen, have updated their numbers, that has moved down. And I think some of you have started to put in some impact of tariffs, which we haven't guided on. Consensus is now at GBP 890 million. I think in the context of our group, I'm comfortable with that at this point in the year. In terms of the bridge from this year to last year, there are lots of moving parts in JD always. But if I can break it down, we have a full year of Hibbett and Courir, adding about GBP 1 billion -- just over GBP 1 billion of revenue, around 6.5% margin. So you get about GBP 60 million there. We will also have headwinds related to things like national minimum wage, the investments we're making in technology and infrastructure. They're probably GBP 50 million plus this year. But equally, we'll start to get some of the benefits of U.S. synergies. And we drive for efficiency. We don't just sit there. And as you saw from the numbers from this year, we work against that. So maybe around a net GBP 30 million on that. And the final benefit -- the other piece is space growth. So we get profit from space growth as we go. So broadly, if you take those big -- there are lots of detail. If you take those big moving parts, you can see something that's broadly flattish pre-tariffs. And I think where consensus has moved in the last 6 weeks is probably just a sensible view from the market that -- of where things will potentially end up during the year. So it's difficult at this time of the year. It's only 15% of our trading. So I'm comfortable with where things are at the moment.

Okay. I think thank you very much for coming. I hope you found that useful, and we look forward to seeing you as the year progresses. Thanks.

Thank you.