TIDMSHOE

RNS Number : 6882L

Shoe Zone PLC

17 May 2022

This announcement contains inside information for the purposes of Article 7 of the Market Abuse Regulation (EU) 596/2014 as it forms part of UK domestic law by virtue of the European Union (Withdrawal) Act 2018 ("MAR"), and is disclosed in accordance with the company's obligations under Article 17 of MAR. Upon the publication of this announcement via regulatory news service this inside information is now considered to be in the public domain.

Shoe Zone PLC

("Shoe Zone" or the "Company")

Interim results for the 26 week period to 2 April 2022

Shoe Zone PLC is pleased to announce its interim results for the 26 weeks to 2 April 2022, (the "Period").

Financial highlights

   --     Revenue of GBP69.9m (2021 H1 : GBP40.4m) +73% 

o Store revenue GBP58.1m

o Digital revenue GBP11.8m

   --     Contribution of GBP11.6m (2021 H1: GBP4.5m) +158% 

o Store contribution of GBP8.9m

o Digital contribution of GBP2.7m

   --     Profit before tax GBP3.1m (2021 H1: GBP(2.6)m loss) 
   --     Earnings per share 5.7p (2021 H1: (4.2)p loss per share ) 
   --     Net cash balance of GBP13.9m (2021 H1: GBP4.1m) at period end 
   --     Interim Dividend of 2.5pps (2021 H1: GBPNil) 

Operational highlights

   --    Stores traded for the full 26 weeks (2021: 10 weeks) 
   --    388 stores at Period end comprising: 

o 45 Big Box (2021 YE: 45)

o 35 Hybrid (2021 YE: 22)

o 308 Original (2021 YE: 343)

   --    8 new Hybrid stores opened and 30 poor performing stores closed 
   --    Capital expenditure of GBP2.3 m (2021 H1: GBP0.2m) 
   --    Annualised lease renewal savings of GBP0.4m, an average reduction of 37% 
   --    Average lease length of 1.8 years (2021: 1.9 years) 
   --    Digital returns rate of 10.9% 

For further information please call:

Shoe Zone PLC Tel: +44 (0) 116 222 3000

Anthony Smith (Chief Executive)

Terry Boot (Finance Director)

Zeus (Nominated Adviser and Broker) Tel: +44(0) 203 829 5000

Daniel Harris, James Hornigold (Investment Banking)

Dominic King (Corporate Broking)

Chief Executive's statement

Introduction

We are able to report continuous trade for a full 26 week period. The last full year saw the business return quickly to profitability and became debt free again. Trading in the Period has continued to be positive as we build on the strategy announced in October last year ("the Strategy") and we believe we are in a strong position. The rapid recovery of our business is due mainly to the continued support of our loyal and committed staff.

Profit before tax stood at GBP3.1m for the Period (2021 H1: GBP(2.6)m loss) with an earnings per share of 5.7p (2021 H1: (4.2)p loss per share).

Stores traded for 26 weeks delivering revenues of GBP58.1m (2021 H1: GBP22.8m / 10 weeks trading). Digital revenues were GBP11.8m (2021 H1: GBP17.6m) in the Period, a reduction to a more normalised position due to the store closures and lockdowns last year, but is still a 114.5% increase on a 2 year basis (2020 H1 GBP5.5m).

We ended the Period trading out of 388 stores, having closed 30 'Original' format stores, which is in line with the strategy announced last October, and opened 8 stores in our new Hybrid format. We have 308 'Original', 45 'Big Box' and 35 'Hybrid' stores and we are actively working to relocate and/or refit further stores in the 2(nd) half of the year, with at least 20 stores currently in solicitors' hands.

Our average lease length is 1.8 years (2021: 1.9 years), giving us the opportunity and flexibility to respond to changes in any retail location at short notice. Property supply continues to outstrip demand and we continue to take advantage of this and significantly improve our property portfolio over the medium term.

Strategy Update

We are accelerating store relocations, refits and infrastructure changes at our head office, and further investment in digital. All of these areas are key to progressing our strategy and we will commit to spending at least 3% of turnover annually on capital projects.

We have continued to invest in our digital infrastructure and our portfolio with more 'Original' Shoe Zone stores converted to either a Big Box or Hybrid format. The results are very positive and we continue to look for relocation opportunities to roll these formats out as planned. Our ultimate goal is a doubling of Big Box locations to approximately 100 and an increase in Hybrid stores to 200 in the medium term. We anticipate trading from a similar sales square footage, albeit from a reduced number of locations. Digital growth fell back as expected as we re-opened all stores, and is now back to the normalised level expected but it is still 114.5% higher on a 2 year basis. We continue to increase drop ship partners, exclusive products and brands and we have introduced additional payment and delivery options to enhance customer experience.

Part of the success of our digital operation is our very efficient returns process which is complemented by our extensive network of stores. We have a returns rate of 10.9% and the vast majority of these are returned to store, hence why our physical store network is critical to our future success.

Dividend

At the last year end we had an outstanding CLBILS loan balance of GBP4.4m, and under the terms of the agreement the business was restricted from making any dividend payments whilst there was a balance outstanding. We have now fully paid off the outstanding loan balance and the Company is therefore now eligible to recommence dividend payments in respect of the new financial Period. The Board therefore proposes an interim dividend of 2.5p per share. The interim dividend will become payable on 17 August 2022 to those shareholders on the Company's register as at the close of business on the record date 15 July 2022. The ex-dividend date is 14 July 2022. The Company will otherwise continue to review management of its cash resources which may include special dividend and/or buyback programme, details of which will be announced in due course.

Financial Review

In the Period total revenues were GBP69.9m (2021 H1: GBP40.4m) with a profit before tax of GBP3.1m (2021 H1: GBP(2.6)m loss). The increase in revenue reflects trading in the stores for the whole of the Period with less disruption to trade, with store revenues increasing by GBP35.3m and store contribution increasing to GBP8.9m (2021 H1: GBP(0.8)m loss). Digital sales reduced to GBP11.8m (2021 H1: GBP17.6m) as the level normalised but has more than doubled on a 2 year basis. Digital gross margins increased to 58.5% (2021 H1: 57.6%) due to reduced markdowns, partially offset by a higher mix of lower margin branded and online exclusive product. Digital contribution was GBP2.7m (2021 H1: GBP5.3m).

Five freeholds and one long leasehold went to auction in December, resulting in a profit on sale of GBP0.3m. A further 4 stores were auctioned in April with a final auction to take place in May.

Gross profit for the Period stood at GBP13.6m, which is GBP5.9m higher than last year (2021 H1: GBP7.7m) mainly due to the 16 weeks additional store sales. The gross profit margin achieved for the Period is 19.5% (2021 H1: 19.2%).

Product gross margins reduced to 60.8% (2021 H1: 61.5%) due to higher average container prices, an increase in the higher mix of branded product and offset by a reduction in markdown activity.

Administration expenses reduced by GBP0.4m to GBP7.5m (2021 H1: GBP7.9m) due to a sales related reduction in digital expenses, a reduction in redundancy payments, a reduced charge relating to foreign exchange movements, partly offset by an increase in contributions to the Shoe Zone Trust.

Distribution expenses increased by GBP0.8m to GBP2.4m (2021 H1: GBP1.6m) due to higher warehouse wages compared to last year where a large number of staff were put on furlough due to lockdown.

Our energy prices are fixed until September 2023 therefore we are not exposed to the market price increases currently being experienced and we have a number of initiatives in place to achieve our carbon neutral goal. All of our electricity consumption is from 100% renewable sources, we have started to monitor energy consumption and we have a programme to insulate ceilings and to install more energy efficient lighting in a number of stores. This year we will add electric vehicles to our fleet.

Stock at cost is higher for the Period by GBP2.7m at GBP31.1m (2021 H1: GBP28.4m) due to a portion of the Autumn Winter ("AW") 2021 boots and wellington intake being delayed. This will now be included in our AW2022 range as this stock is classed as continuity product. We have also brought forward some of our Spring Summer ("SS") 2022 intake to ensure early delivery.

The Company ended the Period with a cash and equivalent balance of GBP13.9m (2021 H1: GBP14.5m) and a net cash balance of GBP13.9m (2021 H1: GBP4.1m). The increase in net cash is due mainly to the additional revenue generated for the full Period and profitability for the Period. We remain prudent and plan to conserve cash as a precaution against the risks of inflation and current global events.

Capital expenditure for the Period was GBP2.3m (2021 H1: GBP0.2m) which is returning to our long term target of 3-4% of turnover. The capital expenditure for the Period includes new stores, refits and relocations, IT expenditure and infrastructure works in the head office and distribution centre, and we will look to accelerate spend in the 2(nd) half of the year and into the next financial year.

We operate two closed defined benefit pension schemes. The deficit for the Shoefayre Limited Pension and Life Assurance Scheme reduced by GBP3.0m to GBP2.9m (2021 YE: GBP5.9m) and for the Shoe Zone Pension Scheme the surplus increased by GBP1.0m to GBP6.9m (2021 YE: GBP5.9m) The reduction in deficit and increase in surplus is due to an increase in bond yields which reduces the value placed on the scheme's liabilities, offset by lower than expected investment returns and a rise in future inflationary expectations.

Earnings per share are 5.7p (2021 H1: (4.2)p loss per share).

Unaudited consolidated income statement

 
                                   26 Wks      26 Wks      52 Wks 
                                      end         end         end 
                                    2 Apr       3 Apr       2 Oct 
                                     2022        2021        2021 
                                  GBP'000     GBP'000     GBP'000 
 
  Revenue                          69,864      40,435     119,142 
  Cost of sales                  (56,247)    (32,688)    (86,667) 
                               ----------  ----------  ---------- 
  Gross Profit                     13,617       7,747      32,475 
  Administration 
   expenses                       (7,508)     (7,906)    (16,962) 
  Distribution costs              (2,448)     (1,593)     (4,499) 
                               ----------  ----------  ---------- 
  Profit from Operations            3,661     (1,752)      11,014 
  Finance income                        0           0           0 
  Finance expense                   (599)       (860)     (1,558) 
                               ----------  ----------  ---------- 
  Profit before 
   Tax                              3,062     (2.612)       9,456 
  Taxation                          (197)         497      (2442) 
  Profit after Tax                  2,865     (2,115)       7,014 
                               ==========  ==========  ========== 
 
  Earnings per Share                 5.7p      (4.2)p       14.0p 
 

Unaudited consolidated statement of total comprehensive income

 
                                                        26 Wks     26 Wks     52 Wks 
                                                           end        end        end 
                                                         2 Apr      3 Apr      2 Oct 
                                                          2022       2021       2021 
                                                       GBP'000    GBP'000    GBP'000 
  Profit/(Loss) 
   for the period                                        2,865    (2,115)      7,014 
                                                     ---------  ---------  --------- 
  Items that will not be reclassified 
   subsequently to the 
  income statement 
  DB pension scheme                                      3,110      2,769      3,379 
  Movement in deferred tax on 
   pension schemes                                       (560)      (526)        761 
  IFRS-16 Opening 
   balances                                                  0          0          0 
  Cash flow hedges 
  Fair value movements in other comprehensive 
   income                                                  682    (1,903)      (190) 
  Cash flow hedges recognised 
   in inventories                                            0          0          0 
  Tax on cash flow 
   hedges                                                (109)        364         56 
                                                     ---------  ---------  --------- 
  Other comprehensive (expense)/Income 
   for the period                                        3,123        704      4,006 
  Total comprehensive (expense)/Income 
   for the period                                        5,988    (1,411)     11,020 
                                                     =========  =========  ========= 
  attributable to equity holders 
   of the parent 
 

Unaudited consolidated statement of financial position

 
                                          26 Wks      26 Wks      52 Wks 
                                             end         end         end 
                                           2 Apr       3 Apr       2 Oct 
                                            2022        2021        2021 
  Assets                                 GBP'000     GBP'000     GBP'000 
  Non-current 
   Assets 
  Property, plant and 
   equipment                              13,555      14,733      14,227 
  Right of use 
   assets                                 28,526      36,464      30,884 
  Deferred tax 
   asset                                   2,490       5,455       3,220 
                                      ----------  ----------  ---------- 
  Total Non-current 
   Assets                                 44,571      56,652      48,331 
  Current Assets 
  Inventories                             31,096      28,433      25,131 
  Trade and other receivables              3,450       3,524       5,457 
  Derivative financial 
   assets                                    456           0           0 
  Cash and cash equivalents               13,872      14,473      19,015 
                                      ----------  ----------  ---------- 
  Total Current 
   Assets                                 48,874      46,430      49,603 
  Total Assets                            93,445     103,082      97,934 
  Current Liabilities 
  Trade and other payables              (19,484)    (12,250)    (16,440) 
  Lease liabilities                     (14,016)    (15,629)    (17,035) 
  Derivative financial 
   liabilities                                 0     (2,620)       (591) 
  Bank loans                                   0     (4,800)     (4,400) 
  Provisions                             (1,727)     (1,756)     (1,698) 
  Corporation tax liability                (317)           0       (773) 
                                      ----------  ----------  ---------- 
  Total Current Liabilities             (35,544)    (37,055)    (40,937) 
  Non-current Liabilities 
  Lease liabilities                     (23,554)    (40,042)    (25,942) 
  Bank loans                                   0     (5,600)           0 
  Provisions                             (2,084)     (1,499)     (1,728) 
  Employee benefit liability             (2,857)     (7,899)     (5,909) 
                                      ----------  ----------  ---------- 
  Total Non-current 
   Liabilities                          (28,495)    (55,040)    (33,579) 
  Total Liabilities                     (64,039)    (91,095)    (74,516) 
  Net Assets                              29,406      10,987      23,418 
                                      ==========  ==========  ========== 
 
  Equity attributable to equity 
   holders of the company 
  Called up share capital                    500         500         500 
  Merger reserve                           2,662       2,662       2,662 
  Cash flow hedge reserve                    323     (1,654)       (250) 
  Retained earnings                       25,921       9,479      20,506 
                                      ----------  ----------  ---------- 
  Total Equity and 
   Reserves                               29,406      10,987      23,418 
                                      ==========  ==========  ========== 
 

Unaudited consolidated statement of changes in Equity

 
                                                                       CF 
                                              Share      Share      hedge    Retained      Total 
                                            Capital    Premium    Reserve    Earnings 
                                            GBP'000    GBP'000    GBP'000     GBP'000    GBP'000 
 
  As at October 
   2021                                         500      2,662      (116)       9,352     12,398 
                                          ---------  ---------  ---------  ----------  --------- 
  Loss for the 
   period                                         0          0          0     (2,115)    (2,115) 
  Defined benefit pension movements               0          0          0       2,769      2,769 
  Cash flow hedge movements                       0          0    (1,903)           0    (1,903) 
  Deferred tax on comp. 
   income                                         0          0        364       (526)      (162) 
                                          ---------  ---------  ---------  ----------  --------- 
  Total comprehensive income 
   for the period                                 0          0    (1,539)         128    (1,411) 
  Dividends paid                                  0          0          0           0          0 
                                          ---------  ---------  ---------  ----------  --------- 
  Contributions by and distribution 
   to owners                                      0          0          0           0          0 
                                          ---------  ---------  ---------  ----------  --------- 
  As at April 
   2022                                         500      2,662    (1,655)       9,480     10,987 
                                          =========  =========  =========  ==========  ========= 
 
  As at October 
   2021                                         500      2,662      (116)       9,352     12,398 
                                          ---------  ---------  ---------  ----------  --------- 
  Profit for the 
  period                                          0          0          0       7,014      7,014 
  Defined benefit pension movements               0          0          0       3,379      3,379 
  Cash flow hedge movements                       0          0      (190)           0      (190) 
  Deferred tax on comp. 
   income                                         0          0         56         761        817 
                                          ---------  ---------  ---------  ----------  --------- 
  Total comprehensive income 
   for the period                                 0          0      (134)      11,154     11,020 
  Dividends paid                                  0          0          0           0          0 
                                          ---------  ---------  ---------  ----------  --------- 
  Contributions by and distribution 
   to owners                                      0          0          0           0          0 
  As at October 
   2021                                         500      2,662      (250)      20,506     23,418 
                                          =========  =========  =========  ==========  ========= 
 
  As at October 
   2021                                         500      2,662      (250)      20,506     23,418 
                                          ---------  ---------  ---------  ----------  --------- 
  Profit for the 
  period                                          0          0          0       2,865      2,865 
  Defined benefit pension movements               0          0          0       3,110      3,110 
  Cash flow hedge movements                       0          0        682           0        682 
  Deferred tax on comp. 
   income                                         0          0      (109)       (560)      (669) 
                                          ---------  ---------  ---------  ----------  --------- 
  Total comprehensive income 
   for the period                                 0          0        573       5,415      5,988 
  Dividends paid                                  0          0          0           0          0 
                                          ---------  ---------  ---------  ----------  --------- 
  Contributions by and distribution 
   to owners                                      0          0          0           0          0 
  As at April 
   2022                                         500      2,662        323      25,921     29,406 
                                          =========  =========  =========  ==========  ========= 
 

Unaudited consolidated statement of cash flows

 
                                                    26 Wks      26 Wks      52 Wks 
                                                       end         end         end 
                                                     2 Apr       3 Apr       2 Oct 
                                                      2022        2021        2021 
                                                   GBP'000     GBP'000     GBP'000 
  Operating activities 
  Profit/(Loss) after tax                            2,865     (2,115)       7,014 
  Corporation tax                                      197       (497)       2,442 
  Finance income                                         0           0           0 
  Finance expense                                      599         860       1,558 
  Depreciation of property, plant 
   and machinery                                     1,514       1,598       3,144 
  Fixed asset impairment and loss 
   on disposal of property,                          1,457         840       1,001 
    plant and machinery 
  Right of use asset on profit, depreciation 
   & impairment                                      7,217       7,782      15,860 
  Pension contributions paid                             0           0     (1,500) 
                                                ----------  ----------  ---------- 
                                                    13,849       8,468      29,519 
  Decrease/(increase) in trade and 
   other receivables                                 2,007       (789)     (2,722) 
  Decrease/(increase) in foreign 
   exchange contracts                                (357)         613         486 
  Decrease/(increase) in inventories               (5,965)     (1,735)       1,567 
  (Decrease)/increase in trade and 
   other payables                                    3,154    ((5,066)       (816) 
  Increase in provisions                               386         524         694 
                                                ----------  ----------  ---------- 
                                                     (775)     (6,453)       (791) 
                                                ----------  ----------  ---------- 
  Cash generated from operations                    13,074       2,015      28,728 
  Net corporation tax paid                           (653)         360       1,353 
                                                ----------  ----------  ---------- 
  Net cash flows from operating 
   activities                                       12,421       2,375      30,081 
                                                ----------  ----------  ---------- 
  Investing activities 
  Purchase of property, plant and 
   machinery                                       (2,299)       (204)     (1,405) 
  Interest received                                      0           0           0 
                                                            ----------  ---------- 
  Net cash used in investing activities            (2,299)       (204)     (1,405) 
                                                ----------  ----------  ---------- 
  New secured loan repayable by instalments              0       5,000           0 
  Repayment of secured loan                        (4,400)     (1,600)     (2,600) 
  Capital element of lease repayments             (10,790)     (4,210)    (20,037) 
  Interest paid                                       (75)       (154)       (290) 
  Dividends paid during year                             0           0           0 
                                                            ----------  ---------- 
  Net cash used in financing activities           (15,265)       (964)    (22,927) 
                                                ----------  ----------  ---------- 
  Net increase in cash and cash equivalents        (5,143)       1,207       5,749 
  Cash and cash equivalents at beginning 
   of period                                        19,015      13,266      13,266 
  Cash and cash equivalents at end 
   of period                                        13,872      14,473      19,015 
                                                ==========  ==========  ========== 
 

Notes to the financial statements for the 26 weeks ended 2 April 2022

Basis for preparation

The consolidated interim financial statements of the company for the 26 weeks ended 2 April 2022, which are unaudited, have been prepared in accordance with the same accounting policies, presentations and methods of computation followed in the condensed set of financial statements as applied in the group's latest audited financial statements. A copy of those accounts has been delivered to the Registrar of Companies.

The financial information for the 26 weeks ended 2 April 2022, contained in this interim report, does not constitute the full statutory accounts for that period. The independent Auditors' report on the Annual Report and Financial Statements for 2021 was unqualified, did not draw attention to any matters by way of emphasis. And did not contain a statement under 498(2) or 498(3) of the Companies Act 2006.

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

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

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

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

   1.   Accounting policies 

In preparing these interim financial statements, the significant judgements made by management in applying the group's accounting policies and the key sources of estimation uncertainty were the same as those applied to the consolidated financial statements reported in the latest annual audited financial statements for the 52 weeks ended 2 Oct 2021.

Going Concern

At the balance sheet date the company had a good cash balance and a strong net asset position. At the time of reviewing these accounts, the Directors have considered the effect of COVID-19 on the ongoing position, and consider that this does indicate that the company will continue to trade for a period of at least 12 months from the date of publishing these accounts. Based on the cash forecasts prepared by the Directors, these financial statements have been prepared on a going concern basis.

   2.   Segmental Information 

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

 
                                         2 Apr      3 Apr      2 Oct 
                                          2022       2021       2021 
  External revenue by location 
   of customers:                       GBP'000    GBP'000    GBP'000 
 
  United Kingdom                        57,751     21,934     87,420 
  Digital                               11,830     17,624     30,499 
  Republic of 
   Ireland                                   0        675        674 
  Other                                    283        202        549 
                                        69,864     40,435    119,142 
                                     =========  =========  ========= 
 

3. Derivative financial assets

 
                                              2 Apr      3 Apr      2 Oct 
                                               2022       2021       2021 
                                            GBP'000    GBP'000    GBP'000 
  Derivative financial 
  assets 
  Not designated as hedging 
   instruments                                   58      (578)      (261) 
  Designated as hedging instruments             399    (2,042)      (330) 
                                                457    (2,620)      (591) 
                                          =========  =========  ========= 
 

4. Taxation

The taxation credit for the 26 weeks ended 2 April 2022 is based on an estimated effective tax rate for the full year of 19% (2021 H1:19%)

5. Earnings per share

 
                                              2 Apr      3 Apr      2 Oct 
                                               2022       2021       2021 
                                            GBP'000    GBP'000    GBP'000 
  Profit in the period and earnings 
   used in basic 
   diluted earnings 
   per share                                  2,865    (2,115)      7,014 
 
                                               5.7p     (4.2)p     14.03p 
                                          =========  =========  ========= 
 

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