In the latest earnings call, JD (NASDAQ:JD) Sports Fashion Plc (JD.L) reported record revenues surpassing £5 billion, a 5.2% increase year-on-year, for the interim results ending August 2024. Despite facing challenges such as tough comparatives and weather impacts on fashion sales, the company achieved a 9% organic growth for the JD brand, with North America and Europe showing strong double-digit organic sales growth. The operating margin remained stable, and cash flow was robust at nearly £300 million.
Adjusted profit before tax rose to £406 million, while statutory profit before tax fell 64% due to non-cash adjusting items. An interim dividend of 0.33 pence was proposed, reflecting the company's commitment to shareholder returns. The company maintains its FY 25 guidance, with a focus on growth, particularly in North America, which now represents 35% of revenues.
Key Takeaways
- Record revenues exceeding £5 billion, a 5.2% year-on-year increase.
- North America and Europe experienced strong double-digit organic sales growth.
- Operating margin remained stable with robust cash flow of nearly £300 million.
- Adjusted profit before tax increased to £406 million.
- Statutory profit before tax decreased by 64% due to non-cash adjusting items.
- Proposed interim dividend of 0.33 pence per share.
- Maintained FY 25 guidance with a focus on growth in North America.
Company Outlook
- JD Sports aims for over 5% annual growth over the next five years.
- Focus on maintaining a premium brand presence, expanding customer reach, investing in digital transformation, and fostering community relationships.
- Plans to open around 200 stores annually, with 102 new JD stores and 32 complementary stores opened in H1.
- The company targets a three-year payback on new stores and remains committed to disciplined investments.
Bearish Highlights
- Statutory profit before tax fell significantly due to non-cash adjusting items.
- The U.K. market experienced a 4% revenue drop, attributed to a challenging trading environment and weather impacts.
- Gross margin saw a slight decline due to weather impacts.
Bullish Highlights
- JD Group reported strong performance in the first half of the year, with JD contributing 71% of revenue and profit before tax.
- North America emerged as the largest market, with significant revenue and profit growth.
- Complementary Concepts and Sporting Goods and Outdoor segments showed revenue and profit increases.
- The company has seen significant expansion, doubling its size over the past five years.
Misses
- Despite overall growth, the company acknowledged challenges from Nike (NYSE:NKE)'s underperformance.
- Net cash flow was slightly negative due to increased capital expenditure.
Q&A Highlights
- Discussion on the payback profiles of flagship stores and their value for brand awareness.
- Full automation of the Heerlen facility expected by early next year to reduce costs and improve efficiency.
- Market share goals in the U.S. post-Hibbett acquisition include aiming for a 10% share.
- The company plans to maintain a capital expenditure of £550-600 million annually to support growth and supply chain improvements.
- The acquisition process for the Korean market is nearing completion, with expected approval by year-end.
JD Sports continues to demonstrate strategic resilience and growth amid market challenges, with a strong focus on North America and digital transformation. The company's robust financial position allows for continued investment in infrastructure and technology, aiming to enhance customer experience and operational efficiency. Despite some bearish elements, such as Nike's underperformance and weather impacts on sales, JD Sports remains confident in its future guidance and market positioning. The company's expansion plans and effective customer loyalty program, along with disciplined investments, position it well for sustained growth in the global sportswear market.
InvestingPro Insights
JD Sports Fashion Plc's recent financial performance aligns with several key metrics and insights from InvestingPro. The company's record revenues and strong growth in North America and Europe are reflected in its solid financial position.
According to InvestingPro data, JD Sports has a market capitalization of $9.76 billion USD, underscoring its significant presence in the sportswear retail sector. The company's P/E ratio of 13.71 suggests that it's trading at a relatively attractive valuation compared to its earnings, which is further supported by an InvestingPro Tip indicating that the stock is "trading at a low P/E ratio relative to near-term earnings growth."
JD Sports' commitment to shareholder returns, as evidenced by the proposed interim dividend, is reinforced by an InvestingPro Tip noting that the company "has raised its dividend for 3 consecutive years." This consistent dividend growth, coupled with a current dividend yield of 1.06%, demonstrates the company's focus on rewarding investors while pursuing expansion strategies.
The company's robust financial health is further highlighted by its profitability over the last twelve months, as pointed out by another InvestingPro Tip. This aligns with JD Sports' reported adjusted profit before tax increase and stable operating margins.
While the article mentions some challenges in the UK market and weather impacts, InvestingPro data shows a strong 3-month price total return of 28.74%, indicating investor confidence in the company's overall performance and strategy.
For investors seeking a more comprehensive analysis, InvestingPro offers additional tips and metrics that could provide deeper insights into JD Sports' financial health and market position. The InvestingPro product includes 7 more tips for JD Sports, which could be valuable for those looking to make informed investment decisions.
Full transcript - JD Sports Fashion PLC (JDSPY) Q2 2025:
Andrew Higginson: All right. So I'm pleased to be here today to talk about our interim results to August '24. I think just a few opening remarks from me really. I think the results show the resilience of the business, actually, that's emerging now and highlight the strengths that we've -- Regis (NASDAQ:RGS) and the team have started to build into the business. It's not been an easy half-one. We had tough comps. We had our legendary U.K. summer, and I know retailers are not meant to talk about weather, but it does impact things like fashion and apparel sales. And, of course, Nike's well reported sort of stumble has created a bit of a headwind as well. So I suppose after a bit of a painful reset in January, despite all those headwinds, we've delivered good results and a good half-one. I think over the two years that we've been here, the business has become much more focused. We've exited all the fashion businesses and so on and so forth. But we still retain a nice spread. And I think that's evident in these numbers here, if you like. If the U.K. weather is terrible, we've got the U.S. and Europe. If Nike is a little bit off form, we have New Balance on Adidas (OTC:ADDYY) and so on. So it's a good business. I think you see today, it's a resilient business and well set for the future. And I'd like to thank Regis and Dominic. There's a huge amount of hard work gone into all these numbers, and the whole of the JD team. And onwards and upwards numbers for the second half and the all-important Christmas period, of course. Anyway, the schedule today is that Dominic is going to take you through the financial results now. And I think there's a slide for this, but I don't know where it's gone. And then Regis talk you through after that. So over to you, Dominic. Thank you very much.
Dominic Platt: Okay. Yes, all good. Thanks. Good morning, everyone, and thanks for attending today. And also welcome to those who are watching online live or watching later on the replay. It's almost 12 months to the day since I joined JD and it's been a busy but productive year. I laid out some of the areas of focus we have been financing JD at the full-year results. And while there's still lots to do, the team have continued to make good progress in building the finance and control environment we need in JD. The business, meanwhile, continues to demonstrate the strength and agility of its multi-brand model and operational excellence with a strong set of results in this first half in what continues to be a volatile market. I'll start with an overview of the results and then I'll hand over to Regis to go into more detail on the progress we've been making and how our strategy and business model position us well to capture profitable market share in this structural growth market. So before we get into the details of the first-half results, let me start with a few brief headlines to set the scene. Overall, our first-half performance is in line with our expectations with revenues breaking the £5 billion milestone for the first time. We've delivered this in volatile market conditions. And as I said, it's a clear testament to the strength and agility of our multi-brand model. From a trading perspective, this reflected strong performances in North America and Europe, which delivered double-digit organic sales growth with 9% organic sales growth overall for the JD brand. This revenue growth was also delivered while maintaining operating margin in line with last year before the benefit of the Hibbett acquisition, reflecting our focus on cost control and operational efficiencies, offsetting the ongoing investment in the future growth of the business and the infrastructure we need to support that growth. Including, Hibbett, operating margin was up 20 basis points. From a cash flow perspective, this was a pretty typical first half. We're a highly cash-generative business and delivered operating cash flow of close to £300 million in the first half. And notwithstanding our increased CapEx and the acquisition of Hibbett, we maintain a strong balance sheet with net cash before lease liabilities of £40 million at the period-end. And lastly, we are maintaining our FY '25 guidance range. I'll come back to that later in the presentation. So turning to the P&L. Reported revenue was up 5.2% and 6.8% on a constant-currency basis. This includes £61 million from the 10 days of contribution from the Hibbett acquisition which completed just before the period-end. Underlying revenue trends were positive, excluding the impact of acquisitions and disposals. Like-for-like sales growth was 0.7% and organic sales growth was 6.4%, both showing an improving trend from Q1 where we were trading against strong comparatives. Our gross margin was 48.2%, 20 basis points down on the prior period. Excluding, Hibbett, which has a slightly lower gross margin rate, it was 48.3% and just 10 basis points down. Given continued promotional activity in the market, this is a solid result. The decline was driven by apparel, mainly through the online channel and particularly in the U.K., where the weight of apparel is much higher. Operating profit before tax and adjusting items was up 6.7% on a reported basis. On a constant currency basis, it was up 8.3% to £451 million. This included a £13 million contribution from the Hibbett acquisition. Hibbett's revenue and profit performance in the period was ahead of the normal run rate as the U.S. back-to-school was slightly earlier this year and boosted by sales tax incentives in its main regions. With net financial interest up £20 million year-on-year, due to increased lease interest as we grow our store portfolio and renew existing leases, profit before tax and adjusting items was up 2% to £406 million. Statutory profit before tax was down 64%, and this was due to increased adjusting items year-on-year. These are predominantly non-cash. The two main contributors to the £280 million of adjusting items were an update to the Genesis put and call option valuation following the acquisition of Hibbett, Genesis being the vehicle through which we own our North American business; and an asset impairment relating to the closure of the Derby distribution center. Adjusted EPS was up 4.5%, ahead of growth in adjusted PBT, and reflects the earnings-enhancing benefits of buying out non-controlling interests across the Group, with a 49% in ISRG in Spain and 40% in MIG in Eastern Europe bought out in the second half last year. And finally, we're proposing an interim dividend of 0.33 pence. That's up 10%, reflecting the cash-generative nature of the Group and our commitment to enhancing returns to shareholders while recognizing the future cash outlays associated with our ongoing strategic investment program. So actually, there's a lot going on in our results here. But to sum it up, the key takeaways are good growth trends, particularly in the U.S. and Europe, a disciplined approach in a promotional market and ongoing cost control, offsetting our investment in the foundations for future growth. So now let's turn to the revenue bridge from H1 last year to this year. Starting with the more mechanical adjustments, we've started to see some material movements in exchange rates over the last few months. And with 70% of our business now outside the U.K., this inevitably has an impact on our reported numbers. So restating H1 '24 revenue for the FX translation effect, results in a £70 million or 1.5% drag. We then adjust for the sales from the disposals we made during H1 '24 and the impact of the FY24 53rd week to align like-for-like weeks. The first half this year includes an additional week in the summer and last year includes an additional week in January. This rebases us to £4.7 billion versus the actual H1 '24 of £4.8 billion. So from that base, with like-for-like growth of 0.7% and the combination of new space in the period and the annualization of new space from last year, we achieved organic growth of £298 million or 6.4%. Finally, we add-in a £63 million M&A revenue contribution, made up of £61 million from Hibbett in the 10 days of the period that we owned it, and a small contribution from the four Simply Gyms we acquired in the period. All in all, when you get to just over £5 billion of revenue, a record first half for JD. It's worth at this point stepping back and looking at the business mix. We are a diversified and well-balanced Group, and this is something Regis will come back to shortly from a strategic perspective. What you can see from the results is that by region, North America is now our largest market at 35% of revenues. And on an illustrative pro forma basis, it will represent 40%, based on combining Hibbett's FY24 revenue and our FY24 revenue. As the largest market globally, we see lots of scope for profitable expansion in North America. Alongside North America, we saw strong growth in Europe, and this has further balanced our geographic mix. Adding in Asia Pacific, as I mentioned earlier, 70% of our business is now outside the U.K. This compares to just 20% 10 years ago. With the majority of our capital expenditure and our prospective acquisitions focused on the growth regions, we will see overseas share of revenue and profit continuing to grow. Turning to channel, we view ourselves very much as an omnichannel business. It's our job to make it as easy as possible for customers to choose how and where they want to buy, and so we are channel agnostic. That said, you can see the impact of two things on the progression of our online share of sales. The first is our store rollout program, which will see an increase in sales from stores with omnichannel online revenue growth following as the stores embed in their catchment areas. And secondly, we are growing revenue faster in regions with lower online penetration, such as North America and Europe. So that will weigh on the share of online sales in the overall mix in the near term. And finally, by category, we saw growth in both footwear and apparel, but with relatively stronger growth in footwear. Footwear grew to 60% of sales with apparel now at 30%. It also reflects stronger sales growth in regions where apparel penetration is lower, such as North America. Again, like online, this factor will impact the overall share of apparel in our sales in the short-to-medium term. From an operational and management perspective, our primary segmentation is by fascia. So let's take a quick look at each of these in turn. We provided more detail by segment in the appendix. JD continues to be the engine of our Group, representing 71% of both our revenue and profit before tax and adjusting items in the first half. Reported revenue grew by 7% and the gross margin at 49.5% was flat year-on-year. We did see profit before tax and adjusting items down 2% with JD including the bulk of the ongoing investment in growth and infrastructure. Our second segment, Complementary Concepts, saw revenue grow 12%, with profit before tax and adjusting items up 16%. This reflects good performances from our existing community fascias, Shoe Palace and DTLR, and the contribution from Hibbett. Like-for-like growth was 1.6% and organic growth was 1.5%. Organic sales in the MIG complementary fascias in Eastern Europe were slightly down, as we started converting stores to JD and rationalizing the brands in the market. Sporting Goods and Outdoor saw revenue drop 5%, but profit before tax and adjusting items grew 16%, reflecting the closure of SUR in the prior period and the disposal of Bodytone in Spain earlier this year. Both were loss-making businesses. Like-for-like sales were up 0.6% with organic growth of 1.6%. Now let's take a look at our Group performance by region, starting with the U.K., which is the JD U.K. business, plus outdoors. Revenue was down 4% and operating profit was down 12% in a tough trading environment. It remained promotional, partly due to tough apparel season. And while I hate to blame the weather, a cold and wet Easter resulted in a late spring/summer season coinciding with the summer sale period. And as I just mentioned, the U.K. is where we see the majority of our investment -- infrastructure investment, sorry. Europe saw revenues up 6%. Operating profit was up 21%, benefiting from operating leverage, as we grow scale in the region and begin to see the early benefits of our European supply chain investments, as well as reduced losses from the closure of SUR and the sale of Bodytone. North America is now our largest market by both revenue and profit. In the period, revenue grew by 16% and our growing scale converted that operating profit -- to operating profit growth of 26%. While there was a small benefit from Hibbett, its contribution was only £61 million or 4 percentage points to revenue and £13 million or 6 percentage points to operating profit. In absolute terms, Asia Pacific revenue dropped 4% with profit down 19%, reflecting the South Korea exit last year, the disposal of GymNation and investment costs in the business ahead of the benefits that we'll get from those as we grow our presence in the region. So with the P&L covered, let's move on to cash flow. JD remains a strongly cash-generative business with operating cash flow of £282 million in H1, despite the seasonal stock build following the FY24 peak season. Net cash flow before financing was slightly negative, reflecting our increased capital expenditure. We saw £71 million movement in our cash balances from M&A, primarily reflecting our acquisition of Hibbett with a new acquisition debt facility funding a large proportion of the acquisition cost. With £31 million in dividends in the period, the overall cash outflow was £222 million. And then turning to our balance sheet, we finished the period with net cash of £40 million, in line with our expectations. As explained on the previous side, we saw a £222 million cash outflow, reducing our cash and cash equivalents balance to £880 million. With the incremental debt incurred as a result of the Hibbett acquisition, bank loans increased by £769 million, resulting in period-end bank loans of £839 million. This gives us £40 million net cash before lease liabilities. With lease liabilities increasing by £397 million due to our store rollout program and the acquisition of Hibbett, we finished the period with IFRS 16 net debt, including lease liabilities of £2.8 billion. Notwithstanding the acquisition of Hibbett, we maintain a strong balance sheet. Before lease liabilities, we are unlevered with a net cash position. Just drilling into the balance sheet a little more, let's take a quick look at our inventory position at the period-end. Excluding Hibbett, inventory was £1.7 billion, £111 million up on the prior period and represents around 16% of our last 12-month sales, broadly in line with the prior period. Hibbett added £278 million. The U.K. saw lower inventory, reflecting slightly lower sales, while Europe and North America saw inventory increase against where we were 12 months ago, as we continue to ensure we have the stock in place to fulfill our growth plans and store rollouts across both JD and other businesses. Overall, we are comfortable with our stock position going into peak. And turning to CapEx. Period-on-period, CapEx was up £42 million to £251 million, reflecting a slightly faster start to our rollout program this year versus the prior period, particularly in North America. You may remember that the Capital Markets Day, launching the new strategy was at the start of H1 last year. Of the total CapEx, two-thirds was investment in our store rollout program. Within the property CapEx, all of the increase was driven by North America with Europe in line and the U.K. marginally down on the prior period. We're highly disciplined with regards to our store investment process. There is a detailed data-driven planning approach, which includes analysis of the catchment area, the competition, the exact fit-out and a clear view on which fascias and cost model are right for which locations, with a continual test and learn approach to inform future investments. All new store approvals, relocations and extensions across the whole Group come to a central property board, which Regis and I attend. And apart from a few flagship stores, we apply a strict three-year payback hurdle. And just touching on our supply chain, CapEx reduced to £12 million period on period, as we work through our Group-wide program to improve supply chain capacity and efficiency. Regis will update you more on this later. The third major part of our cash outflow is on M&A. As you know, in the period we completed the acquisition of Hibbett, adding scale and capability to JD North America. We plan to do a deep-dive at a Capital Markets Day on our North American business in the spring. So for now, I'll bring you up to speed on the high-level current year financials. First off, the 10 days' period that we owned Hibbett is not indicative of the full-year result. As mentioned earlier, this stub period coincided with a slightly earlier peak back-to-school season with more falling into H1 than usual. And was very strong at Hibbett this year, due partly to sales tax incentives across its key regions. Therefore, don't extrapolate the H1 contribution for the rest of the year. So taking that H1, H2 phasing into account, we anticipate Hibbett contributing around £25 million of profit before tax and adjusting items in this year. There are three drivers for this. Firstly, as anticipated, and you would have seen from their published results before our acquisition, current year trends are slightly softer than FY24. Secondly, the esoteric world of acquisition accounting, including the move of U.S. GAAP to IFRS, has impacted negatively on Hibbett's profitability within the Group. These two points together point to around £50 million contribution. And thirdly then, there is £25 million incremental interest associated with the debt we have taken on to acquire Hibbett, bringing us to £25 million overall. And now on to my last slide before we show a video on our U.S. business, and then Regis will take you through our strategic progress. We're maintaining our FY25 PBT before adjusting items guidance of £955 million to £1,035 million. This reflects a 1% to 4% like-for-like revenue growth range. But consistent with what I have previously indicated, we continue to expect to be in the lower end of this range. If the market remains volatile, we still have our important peak season ahead of us. We've highlighted two additional factors. The first is currency and builds on the £15 million FX translation headwind we highlighted when we gave our Q2 trading statement, of which £6 million was incurred in the first -- in the reported H1 results. The pound has strengthened since then, so we have updated this impact based on the current U.S. dollar and euro rates, which adds an additional £10 million, giving you the £25 million in the guidance update. We provided detail on the -- in the appendix, but as a rule of thumb, every 1 US cent equals around £1.7 million change and 1 euro cent equals around a £1 million change to our H2 profit. And then we add Hibbett, which as I just mentioned, we see adding around £25 million in the current year. So to wrap up my section, overall, we're pleased with our performance in H1 in what was a volatile market and we are maintaining guidance, all a reflection of the strength of our multi-brand model and our operational focus. And with that, and before I pass you over to Regis to talk you through progress against our strategy in the period, we'd like to share a short video highlighting our U.S. business with you. [Video Presentation]
Regis Schultz: A JD presentation will not be a JD presentation without a video with loud music. So I hope you enjoy it and let's go to the strategy update with no loud music but a strong French accent. Don't know what is more disturbing. You will tell me after. So good morning, everyone, and thank you, Dominic, for this detailed presentation of our first-half results. It's a record first-half result with positive like-for-like, with an improving trend during the first half, an organic growth of plus 6% with double-digit growth in North America and Europe, and a profit before tax and adjusted item at plus 3.4% in constant currency. In the first half, we completed the acquisition of Hibbett, giving us a platform for growth in the world's largest sportswear market and the fastest-growing economy in the region we operate and now our first market. With an annual turnover around £11.7 billion, equivalent to more than $15 billion and 4,500 store in the world, JD Group leads the global stores fashion retail industry. We have positioned ourselves for ambitious growth with our triple-double; double-digit revenue growth, double-digit operating margin, and double-digit market share in key region. So those ambitious objectives are not new, but they are more relevant than ever as we continue to drive forward. JD's solid foundation is underpinned by several key factors. We are a global leader in one of the fastest-growing sector, athletic leisure, with this market expected to grow by more than 5% annually over the next five years. Our multi-brand model gives us the flexibility and resilience to serve as a preferred route to market for our brand partner, ensuring that we are the go-to destination for the latest in sport and fashion. Most importantly, we have built strong connections with our consumer who love and trust the JD brand. This foundation will support us as we execute on our growth plan in the months and years ahead. At the heart of our success is our continued focus on our four strategic pillars that define JD Group as a leading sport fashion powerhouse. JD Brand First is our commitment to keeping JD at the forefront of premium sport fashion, ensuring that we remain the top choice for consumers around the globe and our first priority as a Group. JD Complementary Concept is about targeting a wider and diverse customer, broadening our reach, deepening our offering, and contributing to our scale and market presence. JD Beyond Physical Retail is our investment in infrastructure, governance, digital transformation to deliver growth and to give our customer a seamless experience across all channels. Last but most important, JD People, JD Partner, JD Community, reflect our commitment to our people, our partner and the community in which we operate. They are critical and vital to drive our long-term success. Our progress across those four pillars give us full confidence that we are on the right path towards sustainable and profitable growth. Over the last five years, we have more than doubled the size of the Group. We have improved our operating margin from 7.7% to 9.1% and we have also moved from being U.K.-centric to become a truly global Group. Looking at the Group in 2019 and today, including Hibbett's 2024 published number, our revenue increased from £4.7 billion to £11.7 billion, driven by both organic growth and strategic acquisition. Over this five years' period, U.K. grew by 50%, Europe expanded nearly threefold, and in North America with the inclusion of pro forma revenue from Hibbett, we have seen a growth of nearly five times. So it's huge growth, reflect our strategic focus on investing in markets with room for profitable and sustainable growth. The acquisition of Hibbett adds over 1,100 stores across the largest sportswear market in the world. As a result, North America will account for more than 40% of our total revenue. This global expansion demonstrates our commitment to invest in key region, key market, to build a more diverse, resilient revenue base and to increase our profitability. Those impressive figures -- growth figures are achieved through three type of growth; like-for-like growth, organic growth with new store and store conversion, and inorganic growth through acquisition. While we continue to deliver positive like-for-like, our performance is influenced by the broader market condition, which has been volatile. Nonetheless, we are confident in our ability to navigate these external challenges and sustain our growth trajectory. Our focus on organic growth is unchanged and our ambition to open around 200 JD stores per year is well on track. In the first half of this year alone, we have opened 102 new JD stores and 32 new complementary stores, and we are on track towards our total doors ambition for the year. The conversion of Finish Line store into JD continued to be a success, with an additional 13 stores converted during the first half of the year. We are looking at an accelerated program of conversion to fully leverage the potential of JD brand in the U.S. For the rest of the world, it's mostly country where we will operate through franchisee, with an asset-light model. We have signed Middle East, South Africa, Indonesia and Philippines, and we should see the number of store openings accelerating in the coming years. By the end of this financial year, we expect to hit a major milestone with over 2,000 JD stores opened globally. As mentioned by Dominic, while growth is important, we maintain a disciplined approach to how we invest in new store with a three years payback hurdle. When it comes to acquisition, our ability to profitably grow acquired fascia has been demonstrated time and time again. As an example, since acquiring DTLR in 2021, we have increased both its revenue and EBITDA by approximately 40%. Similarly, with Shoe Palace acquired in 2020, we have achieved a 50% increase in revenue and more than double EBITDA compared to the last full year before acquisition. This track record underscore our success in integrating and growing acquired fascia by applying three things; JD Group operational excellence, developing omnichannel and leveraging a truly agile multi-brand customer proposition. We look forward to continue this momentum with Hibbett. We will share further details about our plan for Hibbett at an upcoming Capital Market Day in spring. And if you look at our full story in U.S., you can see easily how successful we have been. Back in 2019, we acquired Finish Line at that time with a revenue of £1 billion and losing money. By 2023, our sales in the U.S. reached £3.1 billion, an increase of more than £1 billion if I compare to the addition of the historical sales of the acquisition of the three businesses. Similarly, by 2023, our EBITDA has grown to over £456 million versus a starting point of around £80 million. This is six times more. These achievements reflect our ability to scale rapidly while expanding our presence and making at the same time, JD our number one fascia across North America. Alongside this growth journey, we outperform our peers across key metrics. We have expanded globally at a faster pace than most, and today a significant portion of JD revenue, 50% more than the industry average come from the international market. This global diversification provides JD with a competitive advantage over those who remain heavily reliant on one single market. JD revenue growth is more than double the industry average. Where many peers have struggled to maintain single-digit growth, we are conscientiously delivering strong double-digit growth, particularly in key regions like North America and Europe. More important, JD store productivity is about 50% higher than competitor. Space productivity is the most important KPI in retail. It means that we can secure the best location in the best mall and deliver superior returns. Our digital revenue share is higher than many other. Our omnichannel developments such as Click & Collect and ship from store will further improve our customer experience but also our profitability. Those strong metrics make us the chosen route to market for our brand partners, increasing our agility of our multi-brand model. We understand that sustainable -- sustained growth is impossible without a solid infrastructure, the governance, the organization and the people to support it. This year, we have committed over £60 million to our supply chain and logistics network. Those investments are critical in ensuring that we can meet the growing demand for our global business. We also have increased our spend in technology, cybersecurity, risk management and audit to improve our operational resilience. Protecting customer data and our system from threat is a priority. And by reinforcing our tech stack, we are laying the foundation to support our future growth and digital ambition. Governance, transparency and controlled improvement remain top priority. We have moved to quarterly marketing reporting to give you greater transparency on our performance, and we continue the qualification of internal processes and control across the Group. And we are investing in our people to power our performance at all level, which includes some new key leadership appointments, including Mike Longo as CEO of North America, alongside a new leader in Supply Chain and a new Chief Technology Officer. We have now a global operating model with three regions; North America, EMEA and APAC, and a team of leaders representing the diversity and the scale of our business. For our colleagues, we have continued to invest in upscaling our people through training and development with all retail managers receiving leadership training, covering nine key models, such as general leadership, emotional intelligence and customer service. I'm proud to say that 90% of our store managers have been promoted internally. We are working on a new and innovative way to connect our people across the globe to share information, knowledge, emotion, trends, fashion and have fun. Coming back to our supply chain, one of our key challenge is to follow the pace of our store expansion. So we are working hard to upgrade and modernize it across all the regions. All our new warehouses are fully omnichannel and designed to fulfill B2C and B2B orders. In U.S., we don't have enough capacity in our existing warehouse to support our growth. We are opening a warehouse on the West Coast to serve Shoe Palace and JD growing presence in the West. The acquisition of Hibbett will give us more capacity and a strong distribution network. We are working on the optimization of our U.S. logistics and we'll present back to you at the upcoming Capital Market Day. Following Brexit, it is no longer -- it is no longer competitive to use our U.K. warehouse in Europe. Our new distribution center in Heerlen is critical to improve our margin as we scale across Europe. Heerlen is now up and running with manual operation alongside our existing warehouses and with limited capacity. By 2025, we are looking to bring in automation and to stop gradually using our old facility in Europe. Then in 2026, we will start to use a facility for direct-to-consumer order with faster shipping time. The opening of Heerlen implies reduced volume for our U.K. supply chain. As a consequence, we have consolidated operation in Kingsway, our existing warehouse, and close the Derby DC, simplifying our network and reducing cost and stock. In Australia, we are moving out our existing facility to a new DC to improve delivery times, speed to market and better support our growing business. By upgrading our supply chain and transform to a full omnichannel one, we expect to achieve cost-efficiency, faster fulfillment, better stock turn and scalability to support our future growth and to serve our customer better. We know that the winning customer proposition is the omnichannel one. The customer wants the best of the two worlds, the store and the web, and they want a seamless journey across the different channels. Our digital ecosystem need to provide them with a consistent and effortless experience. It is not about where they make their purchase. It's about ensuring that they can get the product they want, when and where they want it. To enable this, we have been transforming our e-commerce platform. We already launched an enhanced platform in Thailand last week and the next step is our journey to expanding this capacity to Italy before the Rest of Europe and U.K. The JD STATUS loyalty program continued to expand rapidly. In the U.S., we have now 5.1 million active members, while in Europe, the program is equally successful. In the U.K., we have seen 1.8 million app downloads with 81% of user actively engaging. The average transaction value for loyalty member is 33% higher than non-member, demonstrating the program effectiveness in driving customer spend. Beyond just encouraging repeat purchase, the program help us to collect valuable data, providing insight into our customer preference and behavior, enabling us to personalize the experience and improve long-term loyalty. Omnichannel functionality, such as click-and-collect and ship from store, are key driver of both better customer convenience and enhanced profitability. We are rolling out those features across Europe, having successfully trialed them in U.S., ensuring we meet customer expectation and improve our bottom line. As a conclusion, our performance, our strategy and our potential combined are compelling value-creation opportunities. We operate in a structural growth market that benefit from the ongoing global shift toward more casual and active lifestyle. We are positioned as a leading player in key markets; U.S., Europe, U.K., with ample market share headroom. Our multi-brand model ensures resilience, provides strong store economics in both established and emerging markets. We are focusing on delivering a customer-centric omni-channel proposition, supported by our JD STATUS loyalty program. Our robust financial position allow us to continue investing in infrastructure, in supply chain, in technology, in store, ensuring we can scale efficiently. This solid foundation, coupled with our high cash generation, give us the flexibility to deliver great return to our shareholders. So we have delivered a strong first half with positive like-for-like, with an improving trend during the first half, an organic growth of plus 6%, and a profit before tax and adjusted item, plus 3.4% in constant currency. This demonstrates the strength and agility of our multi-brand model. With the acquisition of Hibbett, we are growing our global presence, adding scale and opportunity in the largest sportswear market in the world. We are focusing on operational excellence with margin, cost control and good inventory management. Our balance sheet is strong. We are generating cash from operation to give us the ability to invest in organic growth infrastructure. So now let's move to Q&A.
A - AndrewHigginson: So we have some questions in the room. Of course, we've also got online today as well. So what we'll do is we'll start within the room and then we'll perhaps take some questions online after we've done that. We'll start with Jonathan and then Kate, and then up in the corner over there, and then we will come to you.
Jonathan Pritchard: Morning. Jonathan Pritchard at Peel Hunt. Just a couple on North America, if I may. Badge flips, I wasn't sure the pace in the first half was quite as quick as I expected. So what's going on there? I assume that the Finish Line brand will disappear, but how quickly are you moving forward with badge flips? And then perhaps just another level of granularity on Hibbett, just what you'll bring to the party. Obviously, very attractive graphs you put on there with DTLR and Shoe Palace. How are we going to achieve that with Hibbett? What are the things that it perhaps lacks that JD can add?
Regis Schultz: Yes. So on the badge flip in U.S., we are -- as you mentioned, I think we are looking at a plan for that in three years' time, we will have -- move all the store from Finish Line to JD. We are testing a new model. For the time being, we have been taking the high-potential store in terms of sales and high sales. So we are now looking at stores which are smaller. So how we adjust the investment to make sure that we get the right return when we flip the badge. So we have done some very interesting tests around 50,000, 100,000 and 150,000 CapEx to see what type of upside we can get. So that will continue to move. And I think in the coming two years, you will see all the stores moving to JD. On Hibbett, I think that we see two things. The first thing is that our success with -- and you have seen the number with DTLR and Shoe Palace. As I said, was three things. First, operational excellence, how we manage stock, how we manage the customer experience. We bring a lot of expertise in what we have done in terms of the quality of our process, the quality of the way we organize the stock room, we give the service to the consumer. So that's one we believe that there is some benefit for them to learn from what we have done. I think the second one, which is a big one, is that we are truly multi-brand and I think that being European, we tend to have more brands, and the U.S. retailer, especially the sportswear one, has been very much focused on Nike only and more -- acting like a Nike distributor. We bring a much -- breadth of offer and we bring this multi-brand, which is more resilient, especially in today's situation. So I think that's a key benefit too. And I think that the last one, we will get the benefit of Hibbett's strong supply chain expertise, strong team, in term of our back office for the U.S. So there is -- it's a two-way thing. So I think there is things that we will bring and there are things that we will get. And I think that's the first element of that. We had one week with the team to start to put the team together and I'm very pleased about the way it works. It's the same culture. The Hibbett team has been in the industry for a long time. Our team has been in the industry for a long time. We speak the same language and I think that it went well. And I think we have very complementary talent and I think I'm looking forward for the value we can create in the U.S. by -- through this acquisition.
AndrewHigginson: Good. Kate?
Kate Calvert: Thanks very much. Kate Calvert from Investec. Two questions from me. It looks like Nike's underperformance is going to remain a headwind for a while. Can you give some detail on how the business has had to pivot, say, in the first half to kind of fill that Nike sales shortfall in the States? And do you think you're in a good position for the second half? And in terms of the second question, could you talk through how the promotional environment changed in the first quarter versus the second quarter? And again, your sort of thoughts on the second-half promotional environment in the States, given Nike's comments last night?
Regis Schultz: Yes. I think that on Nike, we are more positive than you are. I think that we see some good thing happening. I think that Elliott will bring energy into business and focus on product and innovation and wholesale partners. So I think we're quite positive on that. I think that at the same moment, you know, we are lucky, we are in an industry, which is a growing industry. So consumer wants new product and if they don't find it from Nike, they will find it from other brands. So I think our agility to move and our agility to pick up trends and to be the first one to pick up those trends has been demonstrated time and after time. And I think that we will continue to see that happening. So we see huge trends around retro running and that is New Balance, that is Asics, it is Nike 2 with Vomero. So I think we see that. We have seen the Terrex trend with Adidas . So all of that give us a lot of headwind and I think will help us in the coming months. So I think we are not nervous about that. I think we'll manage that and we have been managing that for a long time. But I feel more positive about Nike than what you -- the way you describe it. On promotion, I think that you remember certainly at the beginning of the year, a lot of competitors was saying that promotion will be less. I think we have not seen that. I think it's the same as last year, and we built our plan based on that and we built our second-half based on that. So we have not seen reduced promotion. We have not seen increasing promotion. I think it stayed as it was and I think that there is still a lot of promotion out there and there's still a lot of people trying to buy -- sell by doing promotion. So we feel that the way we have forecast was the right way to forecast.
Monique Pollard: Thanks very much. It's Monique Pollard here from Citigroup. A couple of questions from me. The first one was just on the gross margin. Obviously, underlying the gross margin, down 10 basis points in the first half, but actually down 30 basis points in the second-quarter, underlying, ex Hibbett. Now you pointed out that obviously the weather and the late start to the summer season had an impact, but just wanted to understand if you could give us any comfort that a lot of the sequential deceleration in the gross margin was just the weather and therefore doesn't recur into the second half of the year given your guidance on the gross margin being broadly flat. And then the second question is just on the current trading. I know you're not giving current trading today because we've got the quarterly results, but whether you could at least comment on whether it's in line with expectations and you're comfortable with the current trading, because I think there's some nervousness in the market, particularly given Nike results overnight, et cetera.
Dominic Platt: Okay. So I mean, on the gross margin percentage, you're right. So Q1 we were flat. Q2, we were down about 30 basis points excluding Hibbett. And that really did reflect, I think, a more volatile second quarter. The weaker gross margin in the second quarter was in the U.K. And as Andy has already said, we don't like to blame the weather, but we are going to. Easter, early summer was pretty awful and people weren't buying the summer ranges at that point. When we did sell them, it was during the sales period. So -- and I think everyone else is in the same position. So it's pretty promotional. So that did weigh on our margin in the second quarter. That's taken it down 10 basis points, excluding Hibbett for the first half. Look, I mean, it's a volatile market. There are things like that are happening. But when we look forward, as Regis said, we still -- we see the promotional environment saying relatively similar. That's how we forecast. There will be some ups and downs, but overall, we're still comfortable we're broadly flat year-on-year. And on the current trading, I think what I will say is we've reiterated our guidance for the year. The only impact is really around currency translation effect and adding in Hibbett.
Richard Chamberlain: Thank you. Richard Chamberlain, RBC. Could I ask about the returns and sort of payback profile for flagship stores? I think you indicated earlier, you allow a little bit more slack versus the sort of the usual three-year criteria, but I was just wonder how they're panning out so far in the U.S. and also in the U.K. for flagship locations. And then the second one is how are you getting on with the Euro warehousing automation plans and the benefits to come there, and I guess things like avoiding double duty and so on. And where are we on that sort of journey? Thank you.
Dominic Platt: Should I start? I mean, I think the flagships are a handful of stores in -- 4,000. So we shouldn't let that sort of guide the overall position. Regis allows them to be less than three years payback. As CFO, I sit there with gritted teeth, but it's the right -- it's the right thing to do. And they're all slightly different. So if you take our flagship stores in the last 12 months, Champs Elysees has got us a presence in the capital of Paris, huge footfall, huge brand awareness. So it's quite difficult to say what criteria we apply. There is -- there you say, it's sort of a marketing impact that we can take from those, Times Square in New York, et cetera, et cetera. In cases, from an accounting perspective, do we have to impair them? No. So we're comfortable with the investment we're making, but they don't necessarily hit that three-year payback.
Regis Schultz: I'm sure Champs Elysees will do it, but that's a…
AndrewHigginson: That's a debate. So...
Dominic Platt: We'll have a bet.
Regis Schultz: And on our warehouse in Heerlen, so what we have done is that it's open. We are using manual process and -- half of the space, because the other space has been built with automation. So that means that we still use a little bit our U.K. warehouse, but it has been reduced, as mentioned by Dominic. So we have reduced a little bit the double cost and the tariff. But we are still using two other warehouses in Europe that we will be closing when we will be fully automated. So -- but we have decided -- we have decided not to take any risk ahead of peak period because we could have pushed to get there, but that's a risk. So we just say we will postpone to beginning of next year. So that means that we will have time to ramp up. Yes, it is extra cost, but at the same moment, I think that there is no more -- it's much safer to do that.
John Stevenson: John Stevenson at Peel Hunt. A question on learning points really. It's been a really tough 18 months. Obviously, you talked about the weather, consumer, competitive sort of supplier issues in terms of your brand partners. Would you change anything with hindsight in terms of how you come to market? And how does it make you think about peak this year in sort of view of how things have been over the last 18 months? And I guess the other side of that question would be any areas that have been better or more resilient than you expected?
Regis Schultz: No, I think it has been great. I joined the business two years ago and I really enjoy and we have delivered some fantastic growth in the last two years. We've been focusing the business on JD. So, no, I think it has been a great time. I think that, yes, it is fashion and things are moving. And yes, you get some product and some change, but that's part of what we manage every day. So I will say that the things that I will do differently, I think that, yes, we have been too optimistic at one point of time and I think that we paid the price in last January, as mentioned by Andy. But I think that except that, I think the performance has been great. We are on record sales and we move up the profit. So I think it's a -- now it has been a great time.
AndrewHigginson: Just to add to that, I think standing back from the business as the Chair does, it's just impressive how much we've done under Regis' guidance and now with Dominic in the seat as well. If you add it all up, the disposals of the fashion businesses, the acquisitions we're making, the changes to the management team, the changes to the Board, right across the business, and we've been sort of gearing JD up. I mean, the growth numbers on those slides was -- if you look back to 2019, is extraordinary. And, of course, the slight risk of those kind of things is that when you put that much strain through an organization, it was a much smaller organization, you don't quite have the systems and the processes and the infrastructure to deal with it. And so we've been backfilling all of that, at the same time as doing all these other strategic things. And so, all these things are not always apparent externally, but internally, there's a huge amount of work going into it. And it is a great credit to the team that we've got to this point and we seem to have had a good first half with good growth. It felt normal, which is kind of a good thing in JD. Yes, sorry, out in the back, you were early on. I'm sorry I missed you.
Nick Barker: Hi, there. It's Nick Barker from BNP Paribas (OTC:BNPQY). Really a question on innovation and newness. Sort of, we've spoken before on these calls and you sort of said previously that you expect to see newness to land in the second half. I was just wondering if that's still on track and what the early feedback is from that.
Regis Schultz: So we always said that we will not see -- we will see innovation coming, but that will not have a material impact, and that's where we stand today. So we have seen some great product, especially from Nike coming, but that will take time to get through at scale. And so that will take time. And I think that I mentioned that yesterday night too. So we didn't plan anything for the second half. I think we always said that it will be more next year and it will be slow to come because it need to be a -- you need to put that at scale. And so, I think we are in a good place and we are where we want it to be.
AndrewHigginson: Okay, a couple more here. Who's doing the online ? Are you managing the online questions? We'll do these two first, but just if there's any interest online, we should do that.
Unidentified Analyst: Hi, David Hughes at Shore Cap. A couple from me. First of all, in terms of the U.S. market, obviously, it's a very big total addressable market that you've got there. Do you have a view on what your market share goals are, kind of, post-Hibbett acquisition, where do you think you can get to? And then secondly, just in terms of CapEx, obviously, this year your kind of CapEx and spends outweighed the operating cash flow. Given the aggressive kind of store rollout that you're targeting, how do you see that evolving over time?
AndrewHigginson: So I will take market share, you would take CapEx.
Regis Schultz: So market share in the U.S., well, it is the largest market in the world. We have around 5% market share. It depends, if you put guns in it, not guns in it and all that stuff, so. So I can say to you, I have 15% market share and 2% market share . So you choose the one you want. But definitely what we believe that in the coming two years, we will double our market share with the acquisition of Hibbett, the development of JD, that type of thing. So our target is a 10% market share and we believe that we will be there if you exclude guns.
Unidentified Analyst: [technical difficulty]
Regis Schultz: No. We are about lifestyle.
Dominic Platt: On the CapEx, yes, I mean, look, we're spending £550 million, £600 million a year. That will continue for next two or three years because our rollout program, as Regis laid out, particularly on stores will continue. We've also been spending significantly on supply chain. That's starting to tail off a little bit now as the major programs start to come to an end. We do have spend to make on tech. I'd say, over the next couple of years, you'd start to see the operating cash flow offsetting that because we'll start getting the returns on that. It takes a while for new stores to mature and start to come through. So I think that's a sort of timeframe where we should see that flipping through.
Anubhav Malhotra: Anubhav Malhotra, Panmure Liberum. Just one question from me. I wanted to ask on the apparel penetration in the U.S., which is much lower than what it is in the U.K. And did mention that they are a lot more Nike focused and you are going to introduce more brands. Can you do similar things on apparel and introduce more apparel? And also in the first two years or three years of your acquisitions with Shoe Palace and DTLR, have you been able to improve that apparel penetration in those fascias?
Regis Schultz: Yes, look, apparel penetration in U.S. would be always lower because in U.S. you have -- a significant part of the U.S. where the weather is hotter than the one we have in U.K. So U.K. will be always higher because we are selling big jacket and other stuff. You don't sell that in Miami. So -- and in California. So I think that there is an element of that which is the value. The other element is that the value of the shoes in the U.S. is higher because you have a higher penetration of Jordan. So it's a percentage thing. So that's two structural things. At the same moment, we know that we can do more and we are developing and we are gaining share. I think that DTLR, especially, has a strong penetration, it's a higher penetration of apparel. So they have a stronger penetration than the rest of the business we have. And for example, Hibbett has a very nice denim business. So we will learn from that. We will adjust. I think that we see a huge success in U.S. from our own brands and mainly on our exclusive products. That's what is driving our performance in the U.S. on apparel, is the huge reach supply and demand, things which are products that we only have, which -- the good news is that they are higher margins than selling other brands. So I think that's where we see the success in the U.S.
AndrewHigginson: Should we -- are there any questions online?
Operator: [Operator Instructions] As of right now, we don't have any race hands. Okay. Like to hand back over to management.
Regis Schultz: A couple more here, one then Kate again.
Unidentified Company Representative: Good morning, Greg Lawless. Can you just talk a little bit about freight and sewers and supply chains? Just give a little bit of color from that, please.
Regis Schultz: Yes. So freight, you know, most 90% of our business is branded and then we buy the brand local. So that's not a problem for us. It's part of a the brands that manage freight. So that the impact on us is quite limited in terms of cost price because it is part of a of what we buy. In term of impact, we still see some delay, but it's different by brand, different by things. So there is no generic issue. There is some issue coming from time-to-time, from brand to brand. And so that's a -- and in the U.S. because if I expand in the U.S., there is some rumors around a strike on the east part, most of our product coming on the west part. So that's the same should be. And we already have 50% of our Christmas buy-in our stock. So we are almost there. So I think that it should be okay.
Kate Calvert: Thanks. I'm Kate Calvert from Investec. Just a couple of quick ones. Could you update us on Korea acquisition and your thoughts on the timeline there.. And the second one is just on DTLR and Shoe Palace. You opened quite a lot of stores there and have massively accelerated the opening program there. What's your sort of thoughts on ongoing rate of new-store opening for those two?
Regis Schultz: Yes. So on Korea , we -- as you know, we are in the process. We are in the 30 days in the process with the European Commission. We should have the answer and at the end in 10 days now or 15 days now. So at that moment, we believe that we should -- this is end-of-Phase 1. We believe that should be a okay to go with some remedies and we believe that we have the right response to the remedies and that means that we should be able to go-ahead and to close the deal at the end of this year. So that's -- but I keep saying that. So I will not commit to anything, but we have never been so close. So second question was -- sorry, and DTLA. DTLR Yes. Yes, we have seen great success, as you have seen with DTLR and Shoe Palace we have seen some opportunity because in this City specialty segment, I think a lot we are consolidating the market. Now we have three brands with City Gear, Shoe Palace, DTLR, and we have seen some space where we can expand. So that is a -- so that's why we have accelerated the development of Shoe Palace and DTLR. And I think we have mapped completely the U.S. market to make sure that we have the right store for JD, the right store for the City specialist and the rights. So we are doing all this mapping and through this mapping, we discovered that there was quite a lot of opportunity to develop Shoe Palace and DTLR. So that's what we're doing.
Andrew Higginson: Good. Well, thanks, everyone. I think we've sort of run to a natural close at this point. So thank you very much for coming today. Well done again to the team, and look forward to seeing you again second half of the year and year-end. Thank you.
Regis Schultz: Thank you.
Dominic Platt: Thank you.
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