REG - Shoe Zone PLC - Interim Results <Origin Href="QuoteRef">SHOE.L</Origin>

Shoe ZoneAnnouncement

07/06/2017 07:05

RNS Number : 3385H
Shoe Zone PLC
07 June 2017
7 June 2017
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 1 April 2017.
Financial Highlights
 Revenue of 72.9m (2016 H1: 74.6m) reflecting the continued rationalisation of the retail store estate
 Product gross margin improved to 62.8% (2016 H1: 61.1%)
 Underlying profit before tax of 1.3m (2016 H1: 1.7m)
 Statutory Profit before tax of 0.3m (2016 H1: 1.9m)
 Underlying Earnings per share of 2.16p (2016 H1: 2.79p)
 Statutory Earnings per share of 0.50p (2016 H1: 3.05p)
 Interim dividend raised to 3.4p per share (2016 H1: 3.3p per share)
Operational Highlights
 Rent on renewals fell on average by 21.4%, equivalent to a full year saving of 176k
 Rent as a % of turnover is steady at 14% (2016 H1: 14%)
 Footwear orders placed directly with overseas factories increased to 83.4% (2016 H1: 72.2%)
 Sales from non-footwear ranges increased by 24%
 Shoe Zone products available across Europe via Amazon Marketplace
Nick Davis, Chief Executive of Shoe Zone plc, said:
"I am pleased with the Group's performance in the first half as we continued to actively manage the retail estate while driving profitable sales. The devaluation of sterling against the dollar has impacted the Group's statutory profits in the period however as we reach the annualised rebasing of this rate, we anticipate the ongoing impact will be significantly reduced."
"Our Big Box trial has continued to perform well and as such, we will accelerate roll out of the concept during the second half of 2017. We aim to have 10 Big Box stores by the end of 2017 and will continue with the planned growth in subsequent years."
"The Group has traded broadly in line with management's expectations since the period end and the Board continues to look to the future with confidence."
There will be a presentation for analysts at the offices of FTI Consulting, 200 Aldersgate, London, EC1A 4HD, at 9:30am on 7 June 2017.
For further information, please call:
Shoe Zone plc
Anthony Smith (Chairman)
Nick Davis (CEO)
Jonathan Fearn (CFO)
Tel: via FTI Consulting
Numis Securities Limited (Nominated Adviser & Broker)
Oliver Cardigan
Mark Lander
Tel: +44 (0)20 7260 1000
FTI Consulting (Financial PR)
Jonathon Brill
Alex Beagley
Eleanor Purdon
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 and in 2017 is celebrating its 100th Anniversary. The Group operates from a portfolio of 504 stores and employs approximately 3,500 employees across the UK and the Republic of Ireland. Shoe Zone's online offering (www.shoezone.com), combined with its extensive store portfolio, enables its customers to shop via multiple channels. 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 1 April 2017, the Company generated revenues of 72.9m (2016 H1: 74.6m) and underlying profit before tax of 1.3m (2016 H1: 1.7m). This performance reflects continued management of the retail estate whilst driving profitable sales. During the first six months the company continued to manage the impact of the devaluation of sterling and the impact of this is shown as an adjustment between underlying and statutory profit. As we reach the annualised rebasing of the exchange rate we anticipate that the ongoing impact will be much lower.
Product gross margin performance remains strong at 62.8% (2016 H1: 61.1%) and cash generation continues to be a focus. As at 1 April 2017, Shoe Zone had net cash of 4.6m (2016 H1: 8.1m) with no bank debt. This lower cash balance is partly explained by the higher dividend paid in the period and the slightly delayed timing of the roll out of the new Big Box concept; as stock has already been purchased and we anticipate this to be utilised as new Big Box stores are opened. 
The reported deficit in the pension fund has also fallen from 13.1m at 1 October 2016 to 7.9m at 1 April 2017. This is compared to a deficit of 6.3m at 2 April 2016.
Management continues to monitor costs closely and these remain tightly controlled.
Dividend
The Board is declaring an interim dividend of 3.4 pence per share, (2016 H1: 3.3p per share). This will be paid on 16 August 2017 to shareholders on the register on 21 July 2017. The shares will go ex-dividend on 20 July 2017.
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 83.4% (2016 FY: 72.2%) of total footwear orders. Working closely with manufacturers has helped maintain 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 up 24% on the previous period.
Property
We continue to make progress with the Company's strategy to increase the number of larger Grade 1 stores. Since the start of our financial year on 1 October 2016, we have five additional Grade 1 stores created via openings, refits and sales floor density enhancements. We have opened nine new stores, one of which was our Kirkstall Leeds Big Box store, completed three relocations and closed 12 stores. 
We have continued to enhance the store portfolio by refitting 13 stores and refreshing all in-store marketing and promotional materials. This brings a much more modern feel to the in-store experience and uses the new Shoe Zone branding and colour schemes. Changes to external fascias will continue through 2017/18.
Rents on renewal fell by 21.4%, equivalent to a full year saving of 176k. Total rents remain tightly controlled at 14% of turnover.

As at 1 April
2017
As at 2 April
2016
As at 1 October 2016
Big Box
3
-
2
Grade 1 (large - 400 styles) *
289
284
284
Grade 2 (medium - 350 styles)
106
112
110
Grade 3 (small - 300 styles)
106
122
114
TOTAL
504
518
510
* incl. 36 Grade 1+ (450 styles)
Multichannel
Multi-channel continues to show strong profitable growth, with year on year sales growth of 30% and represents a key component of the Shoe Zone customer experience. During the first half of the year our customer offer has been widened through Amazon Marketplace so that customers can purchase Shoe Zone products from across Europe in addition to the UK and Ireland, where we have both bricks and mortar and online presence.
Email continues to be a strong source of online sales growth and our email club membership has grown by 18% over the first half. We sent an additional 3.6m targeted emails during the period. Customer returns are well managed at 12.0% of sales, albeit slightly up on 10.4% in 2016 due to short term factors during the implementation of Amazon Marketplace across Europe. 
Mobile visits now account for 76% (2016 H1: 70%) of total visits and mobile revenue has grown to 66% (2016 H1: 57%). We continue to develop mobile technology as the primary focus of our digital strategy.
Current trading and outlook
The retail market remains uncertain given the political environment in the UK and across Europe in the coming months. 
Trading continues to be broadly in line with expectations, with the cost base benefitting from the new rates regime, albeit this may be partially offset by the potential impact of increases in shipping costs. 
The Big Box trial has performed well and as such, we will accelerate roll out of the concept during the second half of 2017. We aim to have 10 Big Box stores by the end of 2017 and will continue with the planned growth in subsequent years. 
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



26 weeks ended 1 April 2017

26 weeks ended 2 April 2016

52 weeks ended 1 October 2016



Underlying

Non-underlying

Statutory

Underlying

Non-underlying

Statutory

Total



'000

'000

'000

'000

'000

'000

'000
Revenue 
3

72,862

-

72,862

74,593

-

74,593

159,834
Cost of sales


(62,532)

-

(62,532)

(64,699)

-

(64,699)

(132,022)
Gross profit


10,330

-

10,330

9,894

-

9,894

27,812
Administration expenses
4

(6,019)

(1,031)

(7,050)

(5,254)

168

(5,086)

(11,657)
Distribution costs


(2,827)

-

(2,827)

(2,850)

-

(2,850)

(5,769)
Profit from operations


1,484

(1,031)

453

1,790

168

1,958

10,386
Finance income


11

-

11

34

-

34

56
Finance expense


(155)

-

(155)

(83)

-

(83)

(190)
Profit before taxation


1,340

(1,031)

309

1,741

168

1,909

10,252
Taxation
6

(261)

201

(60)

(348)

(34)

(382)

(1,801)
Profit attributable to equity holders of the parent
7

1,079

(830)

249

1,393

134

1,527

8,451
Earnings per share - basic and diluted
7

2.16p



0.50p

2.79p



3.05p

16.90p
Unaudited consolidated statement of total comprehensive income


26 weeks
ended 1 April 
2017

26 weeks
ended 2
April 
2016

52 weeks
ended 1 October 
2016


'000

'000

'000
Profit for the period

249

1,527

8,451
Items that will not be reclassified subsequently to the income statement






Remeasurement gains and losses on defined benefit pension scheme

5,064

(1,254)

(8,190)
Movement in deferred tax on pension schemes

(912)

226

1,474
Effect of change in deferred tax rate on opening liability

-

(103)

(362)
Cash flow hedges






Fair value movements in other comprehensive income

1,001

358

1,683
Cash flow hedges recognised in inventories

(1,140)

-

(1,667)
Tax on cash flow hedges

(24)

(64)

(3)
Effect of change in deferred tax rate on opening liability

-

6

6
Other comprehensive expense for the period

3,989

(831)

(7,059)
Total comprehensive income for the period 
attributable to equity holders of the parent

4,238

696

1,392
Unaudited consolidated statement of financial position








Notes
26 weeks ended 1
April
2017

26 weeks ended 2
April
2016

52 weeks ended 1
October
2016


'000

'000

'000
Assets






Non-current assets






Property, plant and equipment

18,667

18,260

18,661
Deferred tax asset

540

-

1,441
Total non-current assets

19,207

18,260

20,102
Current assets






Inventories

27,294

25,485

30,075
Trade and other receivables

5,638

7,038

7,204
Derivative financial assets
5
225

672

651
Corporation tax asset

273

-

-
Cash and cash equivalents

4,613

8,140

15,046
Total current assets

38,043

41,335

52,976
Total assets

57,250

59,595

73,078
Current liabilities






Trade and other payables

(18,928)

(17,970)

(25,348)
Provisions for liabilities and charges

(751)

(991)

(922)
Corporation tax liability

-

(702)

(1,583)
Total current liabilities

(19,679)

(19,663)

(27,853)
Non-current liabilities






Trade and other payables

(3,002)

(2,664)

(2,316)
Provisions for liabilities and charges

(104)

(130)

(75)
Employee benefit liability

(7,851)

(6,336)

(13,058)
Deferred tax liability

-

(72)

-
Total non-current liabilities

(10,957)

(9,202)

(15,449)
Total liabilities

(30,636)

(28,865)

(43,302)
Net assets

26,614

30,730

29,776
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 

107

551

270
Retained earnings

23,345

27,017

26,344
Total equity and reserves

26,614

30,730

29,776
Unaudited consolidated statement of changes in equity

Share capital

Share premium

Cash flow hedge reserve

Retained earnings

Total

'000

'000

 '000

'000

'000










At 3 October 2015
500

2,662

251

32,871

36,284
Profit for the period
-

-

-

1,527

1,527
Other comprehensive income/(expense)
-

-

300

(1,131)

(831)
Total comprehensive income for the period
-

-

300

396

696
Dividends paid during the year
-

-

-

(6,250)

(6,250)
Total contributions by and distributions to owners
-

-

-

(6,250)

(6,250)
At 2 April 2016
500

2,662

551

27,017

30,730










At 3 October 2015
500

2,662

251

32,871

36,284
Profit for the period
-

-

-

8,451

8,451
Other comprehensive income/(expense)
-

-

19

(7,078)

(7,059)
Total comprehensive income for the period
-

 -

19

1,373

1,392
Dividends paid during the year 
 -

 -

 -

(7,900)

(7,900)
Total contributions by and distributions to owners
-

-

-

(7,900)

(7,900)
At 1 October 2016
500

2,662

270

26,344

29,776
Profit for the period
-

-

-

249

249
Other comprehensive income/(expense)
-

-

(163)

4,152

3,989
Total comprehensive income for the period
-

-

(163)

4,401

4,238
Dividends paid during the year
-

-

-

(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
Unaudited consolidated statement of cash flows


26 weeks
ended 1
April
2017

26 weeks 
ended 2
April
2016

52 weeks 
ended 1
October
2016


'000

'000

'000
Operating activities






Profit after taxation

249

1,526

8,451
Corporation tax

60

382

1,801
Finance income

(11)

(34)

(56)
Finance expense

155

83

190
Pension contributions paid

(298)

 (150)

(472)
Depreciation of property, plant and equipment

1,535

1,596

3,153
Loss on disposal of property, plant and equipment

88

56

309


1,778

3,459

13,376
Decrease in trade and other receivables

1,553

1,030

861
Decrease in foreign exchange contract

-

239

239
Decrease/ (increase) in inventories

3,007

3,687

(1,224)
(Decrease)/ increase in trade and other payables

(5,773)

(5,956)

821
Decrease in provisions

(142)

(44)

(168)


(1,355)

(1,044)

529







Cash generated from operations

423

2,415

13,905
Income taxes paid

(1,889)

(1,040)

(2,041)
Net cash flows from operating activities

(1,466)

1,375

11,864
Investing activities






Purchase of property, plant and equipment

(1,578)

(1,356)

(3,195)
Sale of property, plant and equipment

- 

116

-
Interest received

11

34

56
Net cash used in investing activities

(1,567)

(1,206)

(3,139)
Financing activities






Dividends paid during the year

(7,400)

(6,250)

(7,900)
Net cash used in financing activities

(7,400)

(6,250)

(7,900)
Net (decrease)/increase in cash and cash equivalents

(10,433)

(6,081)

825
Cash and cash equivalents at beginning of period

15,046

14,221

14,221
Cash and cash equivalents at end of period

4,613

8,140

15,046
Notes to the financial statements for the 26 weeks ended 1 April 2017
1. Basis of preparation
The consolidated interim financial statements of the Group for the 26 weeks ended 1 April 2017, 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 1 April 2017, 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 2016 was unqualified, did not draw attention to any matters by way of emphasis, and did not contain a statement under 498(2) or 498(3) of the Companies Act 2006.
The consolidated interim financial statements have neither been audited nor reviewed pursuant to guidance issued by the Auditing Practices Board.
The condensed consolidated interim financial statements have been prepared on a going concern basis and under the historical cost convention, as modified by the revaluation of derivative financial instruments to fair value.
The condensed consolidated interim financial statements are presented in sterling and have been rounded to the nearest thousand ('000).
The preparation of financial information in conformity with IFRS requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Although these estimates are based on management's best knowledge of the amount, event or actions, actual events ultimately may differ from those estimates.
2. Accounting policies
In preparing these interim financial statements, the significant judgements made by management in applying the group's accounting policies and the key sources of estimation uncertainty were the same as those applied to the consolidated financial statements reported in the latest annual audited financial statements for the 52 weeks ended 1 October 2016.
3. Segmental information
The group complies with IFRS 8 'Operating Segments', which determines and presents operating segments based on information provided to the chief operating decision-maker. The chief operating decision maker has been identified as the management team including the Chief Executive Officer, Chief Operating Officer and Chief Financial Officer. The Board considers that each store is an operating segment but there is only one reporting segment as the stores qualify for aggregation, as defined under IFRS 8.

1
April
2017

2
April
2016

1
October
2016

'000

'000

'000
External revenue by location of customers:





United Kingdom
70,404

72,225

154,463
Republic of Ireland
2,458

2,368

5,371

72,862

74,593

159,834
There are no customers with turnover in excess of 10% of total turnover

1
April
2017

2
April
2016

1 
October 
2016

'000

'000

'000
Non-current assets by location:





United Kingdom
18,667

18,260

18,661
Non-current assets held in the Republic of Ireland are not disclosed on the grounds of materiality.
4. Non-underlying items
The adjustments made to the reported profit before tax to arrive at underlying profit are:


26 weeks ended


1 April 2017

2 April 2016


'000

'000
Impact of Foreign Exchange 

893

122
Lease Exit Costs / (Income)

138

(290)
Adjustments to profit before tax

1,031

(168)
In order to provide shareholders with a measure of the true underlying performance of the business the Group has made certain adjustments to the reported profit before tax for the interim reporting statement. These adjustments are made in accordance with the Groups accounting policies and are one off in nature or are considered to be materially distortive of the true underlying trading performance of the business for this reporting period.
1. Impact of Foreign Exchange: Following the Brexit decision last June the Group had an unhedged committed stock order programme which has resulted in significant currency losses in the period compared with the prior period. The Group has increased its hedge coverage against forecast purchases of stock and so this is considered to be a one off event.
2. Lease Exit Costs: The Group has continued to exit certain leases as it follows its stores reorganisation as previously reported. In the prior period these were achieved at a premium, whilst in the current period this has been at a net cost. The net movement on a comparative basis is considered to be of a one off nature and material to the understanding of the performance of the business.
5. Derivative financial instruments 
At the balance sheet date, details of the forward foreign exchange contracts that the group has committed to are as follows:

1
April
2017

2
April
2016

1
October
2016

'000

'000

'000
Derivative financial assets





Derivatives not designated as hedging instruments 
95

-

321
Derivatives designated as hedging instruments 
130

672

330

225

672

651
6. Taxation 
The taxation charge for the 26 weeks ended 1 April 2017 is based on the estimated effective tax rate for the full year of 19.5% (2016:20%). 
Further changes to the UK Corporation tax rates were substantively enacted as part of the Finance Bill 2015-16 on 26 October 2015. These include a reduction to the main rate to 19% from 1 April 2017 and to 17% from 1 April 2020. Deferred tax has been calculated at 18% being the rate at which the timing differences are expected to reverse.
7. Earnings per share 

1
April
2017

2
April
2016

1
October
2016

'000

'000

'000






Profit for the period and earnings used in basic and diluted earnings per share
249

1,527

8,451






Earnings per share - basic and diluted
0.50p

3.05p

16.90p

This information is provided by RNS
The company news service from the London Stock Exchange
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