SHOE ZONE PLC — Earnings Release 2018

May 24, 2018

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RNS Number : 0873P

Shoe Zone PLC

24 May 2018

24 May 2018

Shoe Zone plc

Interim Results

Shoe Zone plc ("Shoe Zone", the "Company" or the "Group") the leading UK value footwear retailer, is pleased to announce its Interim Results for the six months to 31 March 2018.

Financial Highlights

·      Revenue growth of 1.1% to £73.7m (2017 H1: £72.9m)

·      Strong product margins at 60.6% (2017 H1: 62.8%)

·      Statutory Profit before tax of £1.0m (2017 H1: £0.3m)

·      Cash increased to £5.9m (2017 H1: 4.6m)

·      Statutory earnings per share of 1.70p (2017 H1: 0.50p)

·      Interim dividend raised to 3.5p per share (2017 H1: 3.4p per share)

Operational Highlights

·      Rent on renewals fell on average by 22%, equivalent to a full year saving of £100k

·      Rent as a % of turnover remained static at 12% (2017 H1: 12%)

·      Footwear orders placed directly with overseas factories increased to 87.1% (2017 H1: 84.7%)

·      Operating from 12 big box locations at period end contributing £3.1m sales in H1

·      Multi-channel sales increased by 21% to £4.9m (2017 H1: £4.0m) achieving contribution of £1.2m (2017 H1: £1.0m)

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

"This has been a good first half for the Group, trading in line with management's expectations and achieving profitable revenue growth.

Our on-going strategic focus on the property portfolio has continued to benefit the Group, with careful management of leases and measured opening of core and Big Box stores, taking advantage of the favourable retail rental environment.

This good performance also reflects our close management of costs and ability to maintain appealing key price-points and multi-buy offers for our customers.

We are delighted that multi-channel revenue has continued to grow profitably, especially via mobile, which remains an ongoing area of development for the business.

Trading momentum has continued into the second half, in line with expectations for the full year. With our growth strategy in place, we believe we are favourably insulated against many of the structural sector issues and the Board remains confident of the outlook for Shoe Zone."

There will be a presentation for analysts at the offices of FTI Consulting, 200 Aldersgate, London, EC1A 4HD, at 9:30am on 24 May 2018.

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

For further information, please call:

Shoe Zone plc Nick Davis (CEO) Jonathan Fearn (CFO)	Tel: via FTI Consulting
Finncap (Nominated Advisor) Matt Goode Carl Homes Alice Lane Hannah Boros	Tel: +44 (0)20 7220 0500
FTI Consulting (Financial PR) Jonathon Brill Alex Beagley Eleanor Purdon Charlotte Cobb	Tel: +44 (0)20 3727 1000

Chief Executive's Statement

Introduction

Shoe Zone is the leading UK value footwear retailer, offering low price and high quality footwear for the whole family. The Group operates from a portfolio of around 500 stores and employs approximately 3,500 employees across the UK and the Republic of Ireland. Shoe Zone's online offering, combined with its extensive store portfolio, enables it to provide a true multi-channel shopping experience to its customers. I will now provide an update on our core areas of progress in the first six months of our financial year.

Financial Summary

In the six months to 31 March 2018, the Company generated revenues of £73.7m (2017 H1: £72.9m) and profit before tax of £1.0m (2017 H1: £0.3m). This performance reflects the continued focus on driving profitable sales through our existing Shoe Zone core estate, developing our successful multi-channel offering and the roll out of the Big Box store format. 

Product gross margin performance remained strong at 60.6% (2017 H1: 62.8%). The slight fall compared to last year is due to higher write downs early in the year and sales mix in the second quarter.

Cash generation continues to be a focus throughout the year and as at 31 March 2018, Shoe Zone had net cash of £5.9m (2017 H1: £4.6m) with no bank debt. This is due to a strong trading performance and the opportunistic disposal of five freehold properties for £1.2m. 

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

Dividend

The Board is declaring an interim dividend of 3.5 pence per share (2017 H1: 3.4p per share). This will be paid on 15 August 2018 to shareholders on the register on 20 July 2018. The shares will go ex-dividend on 19 July 2018.

Product

We remain committed to offering our customers the best value possible and have continued to maintain key price points for our Core Value lines alongside our focus on multi-buy deals (e.g. '2 for £8'). We have continued to increase our direct sourcing and as a result, footwear orders placed directly with overseas factories increased to 87.1% (2017 FY: 84.7%) of total footwear orders. Working closely with manufacturers has helped support gross product margins as well as improving communication and control across the supply chain.

Non-footwear ranges including handbags, school bags, lunch boxes, purses and accessories continue to grow with sales from non-footwear achieving £3.6m, a 12% increase on prior year.

Property

We continue to make progress with the Company's strategy to roll out the new Big Box concept in a managed expansion. During 2018 we have opened a further three Big Box stores in the first half, and are currently completing works on two more stores. We remain on track to deliver 10 stores by the end of the year. The availability of out of town retail space, at the right size and price, has increased in recent months and therefore the pipeline for future roll out remains strong.

Within the core Shoe Zone estate we have opened a further four stores and closed 10 stores resulting in total store numbers at the 31 March 2018 of 493. Having pursued a programme of closing loss-making stores since IPO in 2014, we have achieved our target of loss makers making up no more than 5% of the core estate. Of those that remain, the majority only make a marginal loss.

We have continued to enhance the store portfolio by completing 12 full refits and seven fascia updates in the first half. 

Rents on renewal fell by 22%, equivalent to a full year saving of £100k. Total rents remain tightly controlled at 12% of turnover and the average outstanding lease length on the portfolio has reduced to 2.2 years (2017 FY: 2.3 years).

During the period we completed the sale and leaseback of five freehold properties for net proceeds of £1.2m. Proceeds were in line with Net Book Value held and therefore did not impact on profit. There are 14 remaining freeholds within the estate with a Net Book Value of £7.8m.

Multi-channel

Multi-channel continues to show strong profitable growth, delivering a year on year sales increase of 21% and contribution of £1.2m (H1 2017: £1.0m).

The email database continues to be a strong source of income. Email revenue increased by 28.6% from an increase of only 6.3% increase in emails sent. Significant work is on-going to identify and focus on engaged customers, attempt to re-engage those that have not responded in some time to emails and then remove those customers who do not.

Mobile visits now account for 79% (2017 H1: 76%) of total visits and mobile revenue has grown to 69% (2017 H1: 66%). We continue to develop mobile technology as the primary focus of our digital strategy.

Current trading and outlook

Trading in the first half of the year was in line with management's expectations and this has continued into the second half. We believe that the current growth strategy including management of the cost base and particularly the property portfolio means that we are confident that Shoe Zone is insulated against many of the structural issues faced by other retailers. 

We continue to diversify our customer base through the roll out of Big Box stores, capturing a broader demographic through the sale of own label and branded shoe styles. New 'Unity' fixtures and fittings will be trialled in the second half which will update the look of the core Shoe Zone estate and reduce future Big Box fit out costs by delivering synergies between the equipment used in both store formats.

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

Unaudited consolidated income statement

	Note		26 weeks ended 31 March 2018		26 weeks ended 1 April 2017		52 weeks ended 30 September 2017
			£'000		£'000		£'000
Revenue	2		73,672		72,862		157,777
Cost of sales			(63,634)		(62,532)		(127,657)
Gross profit			10,038		10,330		30,120
Administration expenses			(6,067)		(7,050)		(14,454)
Distribution costs			(2,928)		(2,827)		(5,872)
Profit from operations			1,043		453		9,794
Finance income			7		11		15
Finance expense			(95)		(155)		(306)
Profit before taxation			955		309		9,503
Taxation	4		(104)		(60)		(1,620)
Profit attributable to equity holders of the parent	5		851		249		7,883

Earnings per share - basic and diluted	5		1.70p		0.50p		15.77p

Unaudited consolidated statement of total comprehensive income

		26 weeks ended 31 March 2018		26 weeks ended 1 April 2017		52 weeks ended 30 September 2017
		£'000		£'000		£'000
Profit for the period		851		249		7,883
Items that will not be reclassified subsequently to the income statement
Remeasurement gains and losses on defined benefit pension scheme		840		5,064		5,608
Movement in deferred tax on pension schemes		60		(912)		(1,217)
Cash flow hedges
Fair value movements in other comprehensive income		2,578		1,001		(934)
Cash flow hedges recognised in inventories		(2,333)		(1,140)		(1,233)
Tax on cash flow hedges		(327)		(24)		377
Other comprehensive income for the period		818		3,989		2,601
Total comprehensive income for the period attributable to equity holders of the parent		1,669		5,516		10,484

Unaudited consolidated statement of financial position

	Notes	26 weeks        ended 31 March 2018		26 weeks  ended 1 April 2017		52 weeks    ended 30 September 2017
		£'000		£'000		£'000
Assets
Non-current assets
Property, plant and equipment		20,430		18,667		20,783
Deferred tax asset		932		540		861
Total non-current assets		21,362		19,207		21,644
Current assets
Inventories		25,171		27,294		28,017
Trade and other receivables		5,335		5,638		6,108
Derivative financial assets	3	-		225		-
Corporation tax asset		411		273		-
Cash and cash equivalents		5,900		4,613		11,786
Total current assets		36,817		38,043		45,911
Total assets		58,179		57,250		67,555
Current liabilities
Trade and other payables		(17,638)		(18,928)		(23,576)
Provisions for liabilities and charges		(715)		(751)		(829)
Derivative financial liability	3	(2,520)		-		(2,546)
Corporation tax liability		-		-		(474)
Total current liabilities		(20,873)		(19,679)		(27,425)
Non-current liabilities
Trade and other payables		(1,743)		(3,002)		(1,742)
Provisions for liabilities and charges		(123)		(104)		(120)
Employee benefit liability		(6,011)		(7,851)		(7,108)
Total non-current liabilities		(7,877)		(10,957)		(8,970)
Total liabilities		(28,750)		(30,636)		(36,395)
Net assets		29,429		26,614		31,160
Equity attributable to equity holders of the company
Called up share capital		500		500		500
Share premium reserve		2,662		2,662		2,662
Cash flow hedge reserve		(1,601)		107		(1,520)
Retained earnings		27,868		23,345		29,518
Total equity and reserves		29,429		26,614		31,160

Unaudited consolidated statement of changes in equity

	Share capital		Share premium		Cash flow hedge reserve		Retained earnings		Total
	£'000		£'000		£'000		£'000		£'000
At 1 October 2016	500		2,662		270		26,344		29,776
Profit for the period	-		-		-		249		249
Deferred tax on other comprehensive income	-		-		(163)		4,152		3,989
Total comprehensive income for the period	-		-		(163)		4,401		4,238
Dividends paid during the period	-		-		-		(7,400)		(7,400)
Total contributions by and distributions to owners	-		-		-		(7,400)		(7,400)
At 1 April 2017	500		2,662		107		23,345		26,614
At 1 October 2016	500		2,662		270		26,344		29,776
Profit for the period	-		-		-		7,883		7,883
Defined benefit pension movements	-		-		-		5,608		5,608
Cash flow hedge movements	-		-		(2,167)		-		(2,167)
Deferred tax on other comprehensive income	-		-		377		(1,217)		(840)
Total comprehensive income for the period	-		-		(1,790)		12,274		10,484
Dividends paid during the period	-		-		-		(9,100)		(9,100)
Total contributions by and distributions to owners	-		-		-		(9,100)		(9,100)
At 30 September 2017	500		2,662		(1,520)		29,518		31,160
Profit for the period	-		-		-		851		851
Defined benefit pension movements	-		-		-		840		840
Cash flow hedge movements	-		-		246		-		246
Deferred tax on other comprehensive income	-		-		(327)		59		(268)
Total comprehensive income for the period	-		-		(81)		1,750		1,669
Dividends paid during the period	-		-		-		(3,400)		(3,400)
Total contributions by and distributions to owners	-		-		-		(3,400)		(3,400)
At 31 March  2018	500		2,662		(1,601)		27,868		29,429

Unaudited consolidated statement of cash flows

		26 weeks        ended 31 March 2018		26 weeks   ended 1 April 2017		52 weeks ended 30 September 2017
		£'000		£'000		£'000
Operating activities
Profit after taxation		851		249		7,883
Corporation tax		104		60		1,620
Finance income		(7)		(11)		(15)
Finance expense		95		155		306
Pension contributions paid		(351)		(298)		(649)
Depreciation of property, plant and equipment		1,456		1,535		2,962
Loss on disposal of property, plant and equipment		41		88		188
		2,189		1,778		12,295
Decrease in trade and other receivables		773		1,553		1,084
Decrease in foreign exchange contract		-		-		321
Decrease in inventories		2,727		3,007		2,767
Decrease in trade and other payables		(5,968)		(5,773)		(2,467)
Increase / (decrease) in provisions		3		(142)		(48)
		(2,465)		(1,355)		1,657
Cash generated from operations		(276)		423		13,952
Income taxes paid		(989)		(1,889)		(2,990)
Net cash flows from operating activities		(1,265)		(1,466)		10,962
Investing activities
Purchase of property, plant and equipment		(2,381)		(1,578)		(5,137)
Sale of property, plant and equipment		1,153		-		-
Interest received		7		11		15
Net cash used in investing activities		(1,221)		(1,567)		(5,122)
Financing activities
Dividends paid during the year		(3,400)		(7,400)		(9,100)
Net cash used in financing activities		(3,400)		(7,400)		(9,100)
Net decrease in cash and cash equivalents		(5,886)		(10,433)		(3,260)
Cash and cash equivalents at beginning of period		11,786		15,046		15,046
Cash and cash equivalents at end of period		5,900		4,613		11,786

Notes to the financial statements for the 26 weeks ended 31 March 2018

Basis of preparation

The consolidated interim financial statements of the Group for the 26 weeks ended 31 March 2018, which are unaudited, have been prepared in accordance with the same accounting policies, presentation and methods of computation  followed in the condensed set of financial statements as applied in the group's latest annual audited financial statements. A copy of those accounts has been delivered to the Registrar of Companies.

The financial information for the 26 weeks ended 31 March 2018, contained in this interim report, does not constitute the full statutory accounts for that period. The Independent Auditors' Report on the Annual Report and Financial Statements for 2017 was unqualified, did not draw attention to any matters by way of emphasis, and did not contain a statement under 498(2) or 498(3) of the Companies Act 2006.

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

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

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

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

1.    Accounting policies

In preparing these interim financial statements, the significant judgements made by management in applying the group's accounting policies and the key sources of estimation uncertainty were the same as those applied to the consolidated financial statements reported in the latest annual audited financial statements for the 52 weeks ended 30 September 2017.

2.    Segmental information

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

	31 March 2018		1 April 2017		30  September  2017
	£'000		£'000		£'000
External revenue by location of customers:
United Kingdom	71,532		70,404		152,562
Republic of Ireland	2,080		2,458		4,991
Other	60		-		224
	73,672		72,862		157,777

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

	31 March 2018			1 April 2017				30  September 2017
	£'000			£'000				£'000
Non-current assets by location:
United Kingdom	20,416			18,667				20,499
Other		14			-				284
		20,430			18,667				20,783

3.    Derivative financial instruments

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

	31 March 2018		1 April 2017		30 September 2017
	£'000		£'000		£'000
Derivative financial assets
Derivatives not designated as hedging instruments	(591)		95		(709)
Derivatives designated as hedging instruments	(1,929)		130		(1,837)
	(2,520)		225		(2,546)

4.    Taxation

The taxation charge for the 26 weeks ended 31 March 2018 is based on the estimated effective tax rate for the full year of 19% (2017:19.5%).

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

5.    Earnings per share

	31 March 2018		1 April 2017		30 September 2017
	£'000		£'000		£'000
Profit for the period and earnings used in basic and diluted earnings per share	851		249		7,883
Earnings per share - basic and diluted	1.70p		0.50p		15.80p

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