JD Sports Fashion plc

Hello to everyone. Welcome to the one who joined us on the webcast. Welcome to JD Update. Unfortunately or fortunately, as he will explain to you in his video, Andy Higginson, JD Group chairman, is not with us. But let's share with you his welcome video.

Good afternoon. It's Andy Higginson here. I just want to apologize for not being with you today. The reason I'm not with you is I'm in Vancouver visiting my eldest son, who I've not seen for 18 months, and more importantly, meeting my new granddaughter for the first time. I'm afraid that took precedence on this particular occasion. What I wanted to do is just really as an introduction to the day, give you a little bit of a view from the chair, a personal view of what's happened in the last two and a half years and the progress we've made. There's no question that we failed to manage our city comms properly. We got our forecasting wrong and that's led to a disappointment, which you see reflected in the share price. But I think what it does mask is just the underlying strength of this business and the great work that Régis and the team have done, which perhaps doesn't get the attention it deserves. We've been here two and a half years now, I think it is, and 2022, when we join 2022, it seems like a bit of a distant land in a way. We inherited this incredible platform, this global platform from which to grow and which we're so grateful for in terms of the way we work every day. Having said that, the infrastructure that we inherited, the good and the bad, the infrastructure was very weak. And the infrastructure was weak on IT. It was weak in terms of our online offer. It was weak in terms of our distribution infrastructure. And most importantly, particularly in the context of the city, our accounting and finance infrastructure was woefully short of what was needed. We spent two years, two and a half years fixing a lot of that. It's important to say that we have a strong and stable leadership team. You know, we have grown the business, okay, with the help of new stores and so on. But we've continued to grow the business through a very difficult time, trading-wise. We have achieved growth. We've retained strong cash flows and retained a very strong cash position. We funded the two acquisitions in the last year out of our own resources. And we've rationalized our strategy to a significant extent. We sold off the sprawling fashion business. We bought in minority stakes in MIG and ISRG in Spain. We bought new acquisitions of Korea and Hibbert to come into the business. And we are in the process of rationalizing our DC strategy around the world. Most importantly, we now have a clear and obvious platform for growth as we look forward. Our strategy is very simple, in a way. We are selling lots of sports-related gear to customers, primarily through JD, which is our international brand. that's present in all the markets. But we have complementary businesses that allow us to sell to a wider group of similar sort of gear, which gives us heft in the marketplace, whether that's with the brands, whether that's with the landlords, whether it's with the distribution companies that send our products out to customers. All of that helps, and they're complementary to the JD First strategy. So where do we go from here? Well, I think looking forward, we're obviously in an uncertain world. It doesn't take me to tell you that the political developments of the last few weeks have been seismic. But we're in great shape. We're a business that generates a lot of cash. We can fund our own expansion. We're able to take a long-term view and invest through difficult times to make sure that we come out of those times in fantastic shape. We have really great growth opportunities in front of us, organic growth opportunities primarily. whether that's in Europe, in Asia, or of course in North America, in our fledgling Canadian business, or getting JD into more cities across the United States. I think that opportunity to growth comes in apparel as well. We have an opportunity to get our apparel business stronger in the U.S. and see good growth from that. And, of course, our digital and omnichannel business needs to capitalize on the good work that's already been done and really make sure that we're available to customers whenever it suits them through our online portals in different markets. As I say, we have the strong financials to be able to do that. We have our own cash flows to which to do that. We're not dependent on others. We can deliver that ourselves. And, you know, we look into this difficult time for world markets with a great degree of confidence so we can continue to deliver a strong JDE performance around the world. Anyway, I wanted to leave it at that. Hand over to Rajit and Dominic now to take you through the strategy in the hope that you'll see the great strength in the business as well as some of the challenges we've faced and face going forward.

Great. Thank you, Andy. So, good afternoon. Good morning to the U.S. and for our U.S. joiners. Please be reassured, as far as we know, and as far as the latest news, there is no tariff on webcast. So we should be okay for the time being. So after that, I'm Régis Schultz, I'm JAD CEO. I'm joined here today by Dominique Platt, our CFO, and Michael Armstrong, our JAD Global Managing Director, who I'm sure you will have plenty of questions for. As Andy has said, we have been moving at a fast pace over the last two years, investing in our organic and inorganic growth to become the leading global sport fashion powerhouse and developing the infrastructure and the governance you will expect from a company of our size. At the same time, the market has changed, and it is now the time for us to move to the next phase of our strategy by adapting our plan to focus on organic growth and on profit, leveraging last year's investment to improve return to our shareholder. So let's go back to our CMD in February 2023. We share with you our vision for JD Group to be the leading sport fashion powerhouse structured around four pillars. JD brand first, JD complementary concept, JD beyond physical retail, and JD best for people, best for our partner, and best for the community. JD Brand First is our commitment to put JD at the forefront of premium sport fashion, ensuring that we are the first choice for consumers around the globe and our first priority as a group. JD complementary concept is about broadening our customer reach, our geography reach, our category reach, and contributing to our scale. JAD beyond physical retail is our investment in infrastructure, governance, and digital transformation to support our past and future growth. Last, but most important, JAD people, partner, community, reflect our commitment to our people, to our partner, and the community in which we operate. And we set out three objectives using a sport reference, we are in sport, with a triple-double objective, double-digit growth, double-digit market share and double-digit profit. So let's start by focusing on, before focusing on the next phase of our plan, I would like to share with you our reflection on successes and challenges over the last two years and the lessons learned. So starting with our success. First pillar, JD First. JD Brand has a global organization with one leader being Michael. We have now a consistent customer proposition across the world leveraging our product merchandising marketing expertise and our excellence in retail execution. Michael has been with GAD for more than 25 years, starting in-store, moving to buying, merchandising, marketing, general manager. He is GAD, and he's certainly one of the most talented and experienced leaders in our industry. Second priority was to accelerate our store opening and conversion program to capture a larger share of the market. We set up the ambitious target to open 200 new JZ stores per year, including conversion, with a disciplined approach and three years payback hurdle. We have done it, with 405 stores open, 84 conversions, and a payback of less than three years on average. And Dominique will give you more details around the numbers. And outside of our strategic market, which are Europe and North America, we stopped our existing model of joint venture or acquisition to develop a franchise model with no capex. Done with the opening of Middle East, South Africa, and the flip of our Indonesia GAV into a franchise. Second pillar of our strategy, JD complementary concept. We have simplified the group with the divestment of non-strategic businesses and the acquisition of the minority interest in ISAG and MIG. It has accelerated the development of JD in Iberia and Eastern Europe. And we have done two acquisitions in our strategic market in US with EBIT and in Europe with Korea. Third pillar, beyond physical retail. We have expanded our US loyalty program, JD Status, in the UK, in Ireland, in France, and Eastern Europe, with more than 10 million downloads globally. This is a foundation to develop a closer relationship with our customer, more targeted, more personalized, and more valuable. We have moved from a multi-channel to an omni-channel model. OmniChanel, as you know, is a right customer proposition. It's a competitive advantage that we have versus the D2C and versus PurePlayer, as it is more efficient and less costly. For example, we have developed our ship-from-store capability to shorten our lead time in Europe and to reduce our fixed costs with the closure of a distribution center in the UK. This ongoing omni-channel program, a disciplined commercial policy, and the optimization of our digital marketing spend has resulted in a significant improvement of the profitability of our online business to a double digital operating margin. I'm pleased to say that the gap between offline and offline is almost minimum today. We hire a very respected and experienced leader, Wim van Hals, to build our global supply chain and to fix our European operation. We have opened three major warehouses, one in each of our strategic geographies in the last 12 months. With Dominique joining us 18 months ago, we have embarked on a major governance process and control program. This program started with the separation of the chair and CEO position with the appointment of Andy Higginson as J.D. Chair in July 2022. Andy has restructured the board and brought more expertise, more experience, and more U.S. exposure. We have changed auditors. build from scratch an audit and risk team, double the size of the group finance team, triple our legal team, and build a cyber security team. Just to give you an example of the things that we have fixed, IFRS 16 lease adjustment, where I calculate all on Excel. It is possible when you have 300 lease in UK, not when you have 8,000 lease across 35 country. And I can go on and on on different example. Best for our people. To serve our people better, we have put in place for the first time in JD a global engagement survey. In our last year survey, we reached 88% participation from our almost 100,000 people and deliver a record level of engagement. It demonstrates the commitment and the motivation of our people to drive JD long-term success and growth. In a nutshell, we have done what we say we will do, but we have faced challenges too. And if I go to the challenge, first and most important one, we have seen a slower growth of the sportswear market across the world. This slowdown has impacted us, especially in the UK. With more than 400 JD stores, we have reached our maximum store number. With a slower market and a high increase of people cost, our profitability has been challenged. UK is a mature market where we need to focus on productivity to maintain our profitability. In Germany, we have not delivered the profit we were expecting, so our priority would be to fix our economic model before growth. And to make sure we continue to be disciplined in our expansion, we have done a full review of our Accelerate expansion program to adjust going forward our plan, as Dominique will explain to you. Our second big challenge has been the cost to fix the past under investment in our people, in our infrastructure, and in our governance. It is fair to say that it has both taken more time and will require more cost than we originally anticipated. First, the European warehouse project, initiated after the Brexit, has seen delays and increased costs. We are more than one year behind the original plan. We have changed two times the team in charge, but we are now on track. This has a major impact on our European margin profit, as Dominique will show you in his section. Second, over the past two years, we spent around £60 million of OPEX to secure IT infrastructure and back-office systems. We have put in place IT general control, built a cybersecurity function, and we have upgraded non-supported legacy systems with new solutions. As of last month, we have a new HR IS system, a new solution for our store network, and a new platform for our e-commerce. We have implemented SaaS-based solutions, resulting in OPEX rather than CAPEX, and with a much higher short-term impact on our P&L. Third, our investment in our people. Not only we had to invest in our head office to upskill our finance and governance structure, but we had to invest in our people in store to correct some past practice. We have removed the age-banding in the UK, resulting in an increased cost of £45 million per year. At the same time, wages, especially minimum wage, have increased significantly across most of the markets we operate, resulting in an additional cost of more than £100 million in the last two years. Last, the length of time, the cost and the remedies he took to complete career acquisition has been horrendous. Lesson learned, doing M&A in Europe is not welcome. Of those extra costs and delays, we are not delivering upon the third element of our triple-double, a double-digit operating margin. Our operating margin has decreased for the reasons I just covered, increased staff costs, investment in infrastructure and governance. So despite the fact that we have delivered a positive impact on our operating margin of the accelerated space expansion and the divestment of businesses, If you look at our first two doubles, double-digit growth and double-digit market share, I'm pleased to say that we are on track to deliver the growth and the market share. If you look at growth, the revenue growth coming from our space growth is in line with our plan. Our like-for-like is below the plan, mostly because of offline, online, as our priority has been, as I said before, to build a profitable and sustainable economic model versus short-term sales. But it has been compensated by M&A activity with the acquisition of Korean EBIT. In terms of market share, For those who remember, in 2022, we only had three countries with more than 10% market share. Now, we have more than 10% market share across Europe, and JD Group is a market leader in UK, Ireland, France, Spain, Portugal, Poland, Greece. In North America, JD is now bigger than Footlooker, and we are a market leader in Australia and New Zealand. As a conclusion, we have done what we said we will do. We have delivered the space growth and the market share. We have fixed the governance issue. We have invested in the infrastructure and the people, but at a higher cost than forecasted and a lower like-for-like as the market has changed. The market has changed. And when we did our CMD, our like-for-like for Q4 was almost plus 20%. In fact, it was plus 19.6% to be precise. And the Euro-Romaneter forecast for the market growth was 8% per annum between 2022 and 2027. In reality, the market has grown at around 3% per year in the last two years. So global sport fashion is an attractive and growing market. But we now expect the market to grow at a slower rate over the medium term, in line, or slightly lower than the last two years, around 2% to 3% annual growth on average. And the last word is important, average. Retail and even more fashion, because we are in fashion, are volatile and cyclical. It's never linear growth, especially in the current environment. At the time of the CMD, we were also in a market of high product with a concentration of sales on key franchise. We have seen now a market with multiple new emerging brands and less concentration on key franchise. And I will go into more details because I think it's important to understand our market in more details. If you go in more details of the market dynamic, footwear and apparel market are flat market in the world. It's not growing. So the driver of sportwear growth is an increased penetration of the market. And if you look at the chart on the left, you will see the sportswear footwear was 27% of the total footwear market in 2010. And over the last 15 years, the penetration of sportwear footwear has increased by 17 points to reach 44%. Sneakers are becoming the shoes of every day. Not always here, but it's coming. And in most occasions. If you take the U.S., the most advanced country, the penetration of sportwear footwear is already higher than 50%. Concerning apparel, which is the chart on the right, it is the same, but at a lower scale and at a lower penetration. If sneakers are becoming the shoes, sportwear apparel is one style, part of many. It's a basic and a fashion element of the customer wardrobe. So it is clear that footwear penetration has driven sportswear globally. And we have seen an acceleration of the penetration of sportwear during COVID-19. But post-COVID, the trend has continued, driven by casualization and active lifestyle. And it is important to say that the penetration of support wear in the total market has increased every year in the last 15 years, pre-, during- and post-COVID, and is still growing. However, as the scale of the sportwear market has changed and the penetration has increased a lot, the growth has been less quick, especially in percentage. 100% of zero is still zero. So when you get bigger, the percentage gets lower. Therefore, we forecast a more modest outperformance of sportwear versus the wider footwear and apparel market going forward, resulting in a slower market growth. In a slower market growth, and a market with growth coming from emerging brands and new products, our strong, global, agile, multi-brand model gives us the ability to grow ahead of the market. And it all starts with the consumer, JD customer, our customer. Our greatest strength is our focus on our customer, our ability to see the world through the mindset of our customer. Our customer is a young adult, the 16-24 years old. They move fast, they wear the latest brand, and take on new trends quickly. They want more assortment, more access, more choice, more brands, and more looks that blur the line of sport and fashion. They are looking at global trends via TikTok, social network, they are global. They are not monobrand. They want to be free to mix brands, to mix sport and fashion, to shop with their friends in a multi-brand environment. They are trendsetter and critical for the brand. And JD is responding to their need. Our concept is new, modern. We are global. We are multi-brand. We are sport and fashion. So this close relationship with a young customer gives us this strong partnership with the brand. We are usually the number one partner in the world. We are a full price retailer, so we access new product, innovation first, and we attract brands in the early stage. For example, we were the first major retailer in UK to sell on running. This is because we are a full price retailer. We are connected to our customer, so we are first to discover, to capture trends in the key sport fashion city where we have store. We are defining range by store. This gives us the ability to test and scale brands, new franchise, new product, better than anyone else. We pride ourselves to be the best partner for the sport fashion brand. This strong partnership with the brand gives us the ability to offer the latest and the greatest product to our customer. We are a demanding partner with the brand. working closely with each of them to curate their offer, to select product, to develop product SMU exclusive to us. As a result of that, half of our apparel and 30% of our footwear offering is exclusive to us. When brands are not able to respond to our customer need, we are developing our own product, our own brand, which allow us to target niche or new category. Danin is a good example. We saw the trend coming and we develop product with our own brand supply and demand to respond to the trend. But to offer the latest product, we need to be fast and agile. And let's look at some facts to demonstrate our agility. On the slide, you have the mix of ourselves in footwear. This is on the left. And apparel on the right. First, you will see that we are not looking at our range per brand. You always ask us the question around brands. That's not the way we build our range. We build it by category, by style, to make sure that we are customer-led. And if you take footwear, and this is a simplified segmentation, we have four key categories. Running, new running, what we call new running or what you call performance running, but that's the same for us. Retro running. retro basketball, classic or tennis, Skate, and to simplify the chart, we put terrace in it, which was more football, I would say, and other. You can see the movement if you take retro basketball, which is from 20% in 2020 to almost 40% of our sales in 2024, and back to almost 25% in 2025. So the question that you always ask us, are we agile to change? Yes, we are. Yes, we are doing it. And if you take running, we believe that running will soon be back to 60% as it was in 2020, especially with the development of new running or performance running with OnRunning, Oka, Adidas, Evo, and the coming new exciting Nike running product. So thanks to our agility, we have been able to navigate the change of the trend and deliver 9% annual growth in footwear during the last five years. If you go to apparel, you can see how we have been able to pivot and develop performance apparel and street fashion to continue to grow at a fast pace with an average annual growth of 12%. Performance apparel show our agility to capture growth within the sport category and to pivot when things are changing. This has been done very quickly, as we are more than double ourselves in performance every year in the last three years, and grew more than five times over the last five years. Our development in street fashion, which is the other part, you have core sport, performance, and street, has demonstrated our ability to extend to new category, even when the brand are not responding to the customer need, by developing our own brand or new brand to respond to this customer need. So we are agile, we drive trends, and as a result, we have a strong model that outperforms our peers in all core operating metrics. If we compare ourselves, JD Group revenue growth rate is almost five times the market average, with particularly strong growth coming from our under-penetrated market, Europe, US, APAC, demonstrating our growth potential for the coming years. We have expanded globally at a faster pace than most. This global diversification provides us with a competitive advantage over those who remain heavily reliant on one single market. More important, JD Group store productivity is about 50% higher than competitor. Space productivity is the most important KPI in retail, as it means that you can secure the best location in the best mall and deliver a superior return. Our mix, with a higher penetration of our partners and our peers, partly explains the performance as it increases frequency and traffic. And our digital revenue share is higher than many others. And with the development of our omni-channel capability, we have now a profitable business model close to the profitability of our store. Those strong metrics make us the chosen route to market for our brand partner, increasing our agility of our multi-brand model. Now, let's look to the future and explain how we are adapting our strategy and taking action to deliver improved returns to our shareholders. First, we are refining our growth strategy to take into account the slower market growth, the achievements of the last two years and the lessons learned. As I already mentioned, UK is a maturing market for us. It is our most established market. Our focus will be on productivity and maintaining our market-leading position by investing in bigger, better and fewer stores and keeping our store estate up to date. We have the huge competitive advantage to have short lease and a well-invested store estate. In North America, having completed the acquisition of EBIT, the focus is to develop JD Brand and to improve our return on space by leveraging our different fascia, which I will come to in more detail in the next slide. In Europe, this is a case of refining our approach. We have seen great success, tremendous success in south of Europe, in Italy, Spain, Greece, Romania, Portugal. But it's fair to say that Germany on the other side has been more challenging due to high cost and less appetite from the consumer on sport fashion. So we will take those learning and direct future investment on the market where we see room to profitable growth. Having finally completed the courier acquisition, we will leverage a strong position in France and use JD Group's strong position in Spain and Italy to accelerate courier expansion in those markets. In Spain, Portugal, and Greece, we have a strong sporting goods business. Since the purchase of the minority shareholding, we have taken full control. We have exceeded Netherlands and converting the number of stores to GED in Iberia. We are now very well positioned to focus on developing our market share in sporting goods and our profit. In relation to the rest of the world, we are looking to expand our reach via our Capital Light franchise model. So our second priority, leverage our investment in supply chain infrastructure and governance and delivery efficiency. As mentioned, we have opened three new warehouses. We have all the costs of doing that in the last 12 months. They are all in operation, but only one in full operation. So Airline for Europe should begin to deliver benefit beginning of next year, now that the project is back on track and set to be fully live at the end of 2026. Morgan Hill for our U.S. West Coast will be our first multi-brand warehouse in U.S. end of this year. This will unlock improvement in the speed to market for our West Coast store and give us a blueprint to move our other warehouse in U.S. to become multifaceted. This will deliver significant cost savings and increase our capacity in the future. On digital, we are at the end of a two-year investment to re-platform our omni-channel business. We'll be live at the end of the first half in the US and in Europe-UK in 2026. In both cases, we have incurred significant double running costs and constraints in delivering a fully omni-channel experience to our customers. Meanwhile, we are currently working on opportunity for efficiency in our head office in UK, in Europe, as well as post-acquisition synergy across the back office function in North America. As a conclusion, our strategic framework stays the same, but our focus changes with two clear priorities, refine our growth strategy and deliver efficiency. Let's now go to our biggest opportunity and to spend a little bit of time on our North America business, since it is now our biggest market, as well as the one where we have seen the most change in the last year, and the most important, the one where we see the biggest opportunity. So this is history, but we entered the U.S. in 2018 with the acquisition of Finish Line. We have done two other acquisitions with Shu Palace and with DTLR. We have three times, not once, not twice, but three times doubled the size of the business and more than quadrupled the profit of the business we bought. Our secret sauce, JD Group operational excellence in buying and merchandising, developing a truly agile multi-brand customer proposition and leveraging infrastructure. And we look forward to continue this with EBIT. I hope that this track record show on the slide speak for itself. But I cannot resist to share two numbers with you. In 2019, we were making a turnover of one billion US in the US, one US dollar in US. And in 2025, our turnover will be six billion US dollar, bigger than Footlooker in six years. And our geographical reach has now dramatically changed with a coast-to-coast and a full coverage of the country. And I thought it would be helpful for us to outline the different fascia we operate in North America. Currently, we operate six key fascia, JD, EBIT, finish line, shoe palace, city gear, and detailer. And together we have a comprehensive geographic and customer coverage. We categorize them strategically into three buckets, mass, reach, and focus. Our mass is JD, aligned to JD brand first. So US JD customer is the same young customer as our global customer target that I described before. JD operates in key venue, mostly A and B mall. JD store are destination store, the best sport fashion store in the catchment area. The ones that deliver the most sales compared to everyone in the market. Our reach fascia is EBIT. It's a sport fashion convenient format, expanding our reach in underserved market and rural area. It's a JD local convenient offer. Finish line, corner in Macy's is a great business that extends our reach to an older, more female customer, a little bit like Korea and Europe. And our focus is our city specialists, ShoePalace, DTLR, and CityGear, a community store in urban area. All our customers crew toward specific community, the Hispanic community for ShoePalace, the African American community for CityGear and DTLR. They are mostly strip mall venues with some presence in malls. They are fully complementary on a geographical basis. Shoe Palace are situated on the west coast and southwest. DTLR stores are on the east coast and in the middle, City Gear stores fill the geographical gap between Shoe Palace and DTLR, with less than a 10% store overlap with the two other bannocks. So looking at the difference in terms of return on space between City Gear, City Gear is doing around $250 per square foot, and DTLR and Shoe Palace, which average around $500 per square foot, we have taken the decision to rationalize our portfolio and to convert City Gear store to DTLR, with a limited number of stores converted to Shoe Palace. The five pilot stores have shown strong uplift in both sales and profitability post-conversion. It looks like a triple-digit increase in terms of sales. And we will be finding synergy and efficiency through rationalization of the back-office function with those fascia. As said before, we have a strong track record in the U.S., double sales and credible profit of all our acquired business. A strong team and a strong plan to continue to do what we have done in the last six years, leveraging existing assets to deliver an improved performance and a high return. In addition, I'm pleased to share with you that we have agreed with the Mershaw family, our current minority shareholder in our North America business, to extend our put and call arrangement to 2029 and 2030, to give both parties the ability to fully leverage investment made in the last two years. I think there is no more proof to demonstrate the confidence of the Merchants who are managing our city specialist concept in our North America business and give us more visibility for our capital allocation that Dominique is going to cover in his part. So before I hand over to Dominique, let me share with you four key messages. We are adapting to a slower market growth with a refined organic growth strategy and a focus on delivery efficiency for our past investment. We have a strong and agile multi-brand, multi-geography model. We have demonstrated our ability to navigate short-term headwinds. We are positioned to outperform in North America and Europe by leveraging our different customer proposition. We are disciplined and focused on delivering shareholder return with a strong and stable cash generation. We have delivered around 1.3 billion EBITDA for the last three years. Now I will hand over to Dominic to go through the financials and our strong cash generation, which will fund growth and deliver return to our shareholders. Thank you.