JD Sports Fashion (LSE:JD.) Q2 2027 Earnings Call

0:00 Good morning ladies and gentlemen and welcome to JD Sports Fashion plc HY27 results presentation. At this time all participants are in listen only mode. Later we'll conduct a question and answer session between JD management and sell side analysts. If you wish to ask a question we ask that you please use the raised hand function at the bottom of your zoom screen. Instructions will also follow at the time of the Q&A. I'd like to remind all participants that this call is being recorded I'll now like to hand over to the CEO of JD Sports Regis Schultz to start the presentation foreign

1:05 Good morning, everyone, and thank you for joining us for our half-year results. I'm Régis Schulz, CEO of JD Group, and I'm joined here today by Dominique Platt, our CFO. On the agenda for the presentation, I will start with a key message from the first half. Dominique will then take you through the financials and guidance before I return with an update on the business and our strategic progress. We will then open for Q&A. We deliver a resilient sales performance in the first half against a backdrop that was challenging for our industry and for our customer. Youth unemployment and cost of living pressure both increase while the footwear product cycle continues to evolve in a highly promotional market. Group organic sales were down 0.7%, including a 2.1% contribution from new selling space, despite having over 100 fewer stores overall, in line with our strategy of fewer, bigger, and better stores.

2:04 Our response to a maturing market and challenging trading conditions is to control the controllables. That means focusing on our customers, bringing them the best, latest and greatest products, investing in our omni-channel proposition and maintaining tight discipline on our costs and capital. We are making clear progress against our strategic priorities and delivered against significant milestones. We are investing to improve what we offer to our customers and to enhance the efficiency and productivity of our assets. I will come back to this later. Our product proposition is strengthening and more resilient than ever. While footwear sales were softer overall, we are encouraged by the momentum in running, performance and lifestyle, and newer footwear styles. Apparel and accessory increased to 36% of group sales, in line with our strategy, supported by a strong product lineup, supplemented by our own brand and licensed brand, with faster and more agile reaction to customer preference.

3:08 Online was another area of progress. Online sales grew by more than 5%, rising to 20% of group sales. This was supported by a continued rollout of our new e-commerce platform, Shopify and commerce tool, which unlock new capability, expense choice and service for our customer. Our discipline on cost and capital has again strengthening our balance sheet. Net cash improved by nearly 300 million pounds year on year, even after returning 260 million pounds to shareholder through buyback and dividend over the last 12 months. This is clear evidence of the high cash generation of our business. After all, cash is king and cash is real. Finally, our full year 27 final guidance is unchanged from the Q2 trading statement.

3:57 Profit before tax and adjusting items of between 700 million to 800 million pounds and free cash flow of 460 million to 520 million pounds. This reflects both the market backdrop and also our continued focus on cost and capital discipline. I will now hand over to Dominic to talk through the financial in more details.

4:24 Good morning everybody and thank you Régis. So let's start with our headline financials here on slide 5. And unless stated otherwise, all my commentary is on a constant currency basis. As Regis outlined, total sales were down 0.8% against a tough backdrop. Allowing for a small disposal in the prior year, organic sales were 0.7% lower. Net new space contributed 2.1 percentage points to sales, despite us having 106 or 2.2% fewer stores, demonstrating improving productivity in our new space. And to complete the sales bridge, like for like sales were 2.8% lower. During the period, we maintained our trading discipline within a highly promotional market.

5:10 To stay competitive and engage with our customers, we made controlled price investments, particularly in our online offer. The underlying impact of these investments on our gross margin was a reduction of 50 basis points. This was partially offset by higher marketing contributions year on year. For accounting presentation purposes, the corresponding marketing costs that are funded by these contributions are classified in OPEX. Our statutory gross margin was therefore down 20 basis points year on year. Operating costs, excluding adjusting items and interest on lease liabilities, were 1.6% higher year on year, driven by costs related to new store openings. Excluding new space, like-for-like operating costs were flat year on year. More on that later.

5:56 Overall, the group's operating profit, including lease interest, was £294 million, 19.5% lower year on year. with an operating margin of 5%, 120 basis points lower. This is typically lower than the full year operating margin, reflecting the seasonality of our business, with our key annual trading periods of Black Friday and peak Christmas and holiday season to come in the second half. After net finance expenses, which were 33% lower year on year, profit before tax and adjusting items was £282 million. Our adjusted earnings per share were 13.7% lower on a reported basis at 3.97 pence, with a lower percentage reduction compared to profit before tax and adjusting items, showing the economic benefit of our share buyback programme.

6:47 For completeness, statutory PBT was £241 million, 74.6% higher year on year. This reflects significantly lower adjusting items, which in the period principally related to the amortization of acquired intangibles. Our free cash flow performance in H1 improved by 50 million on H1 last year. The free cash outflow of 18 million reflects the usual seasonality of our business with working capital outflows tending to peak in the middle of the financial year. In line with our capital allocation framework, the board has declared an interim ordinary dividend of 0.4 pence per share, representing one third of the previous year's total dividend. This represents an increase of 21.2% year on year. And finally, as of the 1st of August, before lease liabilities, we had net cash of £168 million.

7:40 As Reggie said, that's an improvement of almost £300 million versus net debt of £125 million a year ago. This slide demonstrates that JD is a well balanced, diversified and global business. As a measure of that global diversity, 76% of our sales came from outside the UK, from markets across North America, Europe and Asia Pacific. And we have significant runway to further grow our market shares in these regions. Our online sales penetration improved year on year to 20% of sales, with online sales up 5.2%, driven by good growth in North America, Europe and Asia Pacific, and well supported by the ongoing evolution of our online ranges and technology platforms. In the UK, online sales were flat year on year.

8:28 The overall 20% penetration is an average and it varies across the group with the UK at 25%, 20% in North America and in the high teens in Europe and Asia Pacific. This provides ample opportunity for growth, particularly outside the UK. As Regis will touch on later, we continue to make significant progress in building out our omnichannel proposition, strengthening our retail ecosystem to meet customers wherever and however they choose to shop and unlocking new capabilities to support higher traffic conversion and basket values. Organic store sales were 2.2% lower year-on-year, reflecting lower footfall outside key events, partially offset by improved conversion and the contribution from net new space. Organic online sales were up 5.2%.

9:16 Turning to category, our agile multi-brand model provides a diversified customer proposition through our footwear, apparel and accessory ranges. In apparel and accessories, organic sales grew by 4%. Our apparel proposition is in excellent shape and we continue to enhance our assortment across athleisure, performance and streetwear. Apparel and accessories now represent 36% of sales. This is an average, with lower penetration outside the UK. We believe there is significant scope for growth in this category, particularly in North America. in footwear organic sales were three percent lower throughout the half we continue to see a significant shift in the global footwear product cycle given the transition between newer but smaller in value franchises and larger end of cycle product lines we saw strong growth across brands less affected by this transition and particularly with performance-based running silhouettes and newer footwear styles that Regis will touch on later Finally, the share of our other category, which includes outdoor living equipment and JDGym's memberships, increased to 4% of our sales mix.

10:26 Turning now to our geographic regions and starting with North America, where we saw a mixed performance through the first half. In Q1, trading was supported by key consumer moments, including the US tax refund season and product launches. performance softened as q2 progressed reflecting weaker consumer sentiment due to incremental cost of living pressures a slower quarter for high heat footwear product and the deferral of back to school demand into august overall for the half north america organic sales were down 1.7 percent and like for like was down four percent Within this, our JD Fascia delivered a more resilient performance versus our complementary businesses with like for like of minus 1.1%, supported by a relatively more diverse product proposition.

11:13 Operating margin was 220 basis points lower year on year, largely due to deleverage impacts and the ongoing wind down of the standalone finish line business. On the deleveraging point, it's worth noting that our sales are typically skewed to the second half, given peak trading in Q4, which applies to all regions. On finish line, which remains a significant but short term factor, this business was the primary source of promotionality amongst our faces in the half. However, we also made targeted price investments across our complementary businesses, particularly in Q2, in order to stay engaged with consumer dynamics. The lower operating margin was also partly driven by investment to strengthen the brand positioning of the JD Fascia in North America. This was partially offset by ongoing operational and back-office efficiency measures across procurement, technology and supply chain and logistics.

12:06 Turning now to Europe. This region delivered organic sales of minus 0.5%, a resilient performance in a promotional market, supported by good growth across our sporting goods businesses. Europe's operating margin was flat year on year with labor cost inflation and costs related to new space offset by cost efficiencies across retail online and supply chain operations including the benefit of ramping automation within our hairline distribution center in the Netherlands and the unwind of the associated double running technology and supply chain costs. As a reminder, we expect over £20 million of cost benefits across FY27 and FY28 as these double running costs fully unwind. In the UK, we saw an improved performance at JD as the half progressed, supported by apparel and accessories, which benefited from strong sales of football replica kit in Q2.

12:59 Underlying performance remained challenged, particularly in footwear in a promotional market. This was partially offset by continued momentum in JD gyms, as well as an improved performance in our outdoor business, which made meaningful operational progress in the half, including the ongoing simplification of its store estate and a well received refresh of its product ranges. Overall, UK organic sales were down 1.6% for the half. The UK operating margin was 130 basis points lower year on year, largely due to targeted price investments and operating costs deleverage impacts. And finally, Asia Pacific delivered like for like sales growth of 3% and organic sales growth of 10.7% with broad based strength across footwear, apparel and accessories and its online channel. Operating margin was 90 basis points lower, largely driven by new store openings.

13:54 Taking a look now at the profit bridge on slide eight. Please note that for the purpose of underlying analysis, I have netted off marketing contributions in gross margin against the corresponding marketing costs within OPEX, which is reflective of how we manage and report the business internally. Starting with the headwinds from the left hand side the like-for-like gross margin rate reduction of 60 basis points which excludes gross margin from new space represented 37 million pounds and like-for-like sales of minus 2.8 percent at a constant gross margin rate represented 92 million pounds to the decline. The contribution from net new space and annualizations was 20 million pounds. The next bar shows like for like OPEX inflation of £45 million, primarily driven by inflation in our labour costs, including higher salaries, as well as technology, digital and marketing investments.

14:47 We maintained a strong focus on cost management in the half, delivering £57 million of variable and structural cost reductions through labour efficiencies, productivity initiatives and operational synergies, thereby fully offsetting like-for-like OPEX inflation. More on this in the next slide. The year-on-year mark-to-market movement of £26 million, which is non-cash, reflects a credit of £13 million in the half versus a charge of £13 million in the prior period, We expect an offsetting mark to market charge of over £10 million in the second half. We saw a £6 million reduction in net finance expense which excludes lease interest. The reduction was largely due to our cash generation and the benefit of the comprehensive debt refinancing we completed in July last year.

15:36 And finally, other, which is largely the impact of translation FX year-on-year, was £4 million. Against a challenging market and industry backdrop, maintaining our sharp focus on costs continues to be a priority. As I described in the previous slide, we fully offset like-for-like cost inflation in the half through our variable and structural cost reductions. We proactively flex store staff levels based on customer activity to help manage labor cost inflation. We continue to leverage our technology to drive operational efficiencies as we automated internal processes and we progressed the rollout of RFID in our JD UK stores. We are starting to realize benefits from our Hairland DC related to the technology and supply chain double running costs.

16:22 And beyond these structural actions, we took a broad based approach to overhead management, driving savings across everything from procurement to travel and a range of other cost categories. All delivering meaningful savings in H1 with further benefits expected as these actions continue to flow through to H2. There is more we are going after in H2 as we leverage our new finance systems and scheduling tools and make further progress in modernizing and automating our distribution centers to name just a few examples. We expect these actions to deliver additional benefits in H2. So overall, we expect cost savings to be more H2 weighted. And as set out in May, we're on track to significantly offset like for like OPEX inflation for the full year. On the next slide, we set out our summary cash flows for the half, starting with our statutory PBT of £241 million.

17:14 Depreciation and amortization was 450 million pounds up 19 million pounds year on year reflecting investment in our stores, supply chain and technology. Lease repayments were 303 million pounds up 49 million pounds year on year. This increase was partly driven by seven lease payments made in the period compared to six payments in H1 last year due to the first of every month being the key lease payment date in many of the countries we operate in. Overall, operating cash flow was £433 million for the half. The changing working capital resulted in a net outflow of £144 million, which compares to an outflow of £263 million a year ago. This included an increase in inventory of £308 million, reflecting the typical seasonal investment in back-to-school stock, and an inflow of £164 million related to net payables.

18:11 Gross capital expenditure in the half was £175 million, down £41 million year on year. Tax, interest and other cash outflows were £132 million. Overall, free cash flow was an outflow of minus £18 million, an improvement of £50 million on H1 last year. Dividend payments and share buybacks in the period were a combined £144 million. Overall, we saw a reduction in net cash of £143 million since the year end, leading to a closing net cash position on the balance sheet of £168 million before lease liabilities. This marks an improvement of £293 million compared to H1 last year, after £260 million of cash returns to shareholders over the last 12 months.

19:03 We continue to take a disciplined approach to capex with a strong focus on returns. Gross capex for the half was £175 million, equivalent to 3% of sales, notably lower than the 3.6% of sales in H1 last year. This was driven by the completion of our supply chain investments in Europe and tighter store-related capex, down 19% year on year. I'll come back to this point on the next slide.

19:50 Reflecting our discipline, our capex guidance for the year is now £350 to £400 million. Finally, we continue to be focused on maintaining a strong and efficient balance sheet. Including lease liabilities, our net debt was just over £2.9 billion, representing net leverage of 1.5 times. and including the Genesis buyout option in FY30 and FY31, our pro forma net leverage of two times remains in line with investment grade levels. Our overall liquidity position remains strong, providing us with significant headroom, including undrawn RCFs, total liquidity at period end was 1.7 billion pounds. Given the challenging global market backdrop, our highly targeted approach on store investment and tight discipline on the application of our targeted rate of return serves us well.

20:41 While our stores and gyms capex was 19% lower year on year, our approach is delivering good results. Strategically, the investment in our store estate is increasingly as much about improving the productivity of our existing store estate as it is about new space. through relocations, upsizes and conversions, including initiatives such as our Fewer, Bigger, Better approach in the UK, in the period we increased our focus on optimizing the productivity of our existing stores and catchment areas with 48 relocations and conversions completed in the half. These actions contributed 0.8 percentage points to sales or 40% of the contribution from so-called new space. As you can see on the right hand side, we have introduced comparable sales as a supplementary sales KPI. We believe this metric provides us and you with a more complete view of like for like performance by including all relocated and upsized stores.

21:37 And also a more balanced view given our traditional like for like measure only captures the cannibalization effect on stores in the vicinity of a relocated store. On this basis, comparable sales were down 2% in the half versus like for like sales down 2.8%. Given the strategic importance of our ongoing actions to optimize the existing store estate, we consider comparable sales to be a more meaningful and consistent basis for assessing the underlying sales growth of our business. It's also the metric used by many of our US peers, so provides better comparability. Over time, we expected to replace our current like for like sales measure. Outside of relocations, upsizes, conversions, we continue to take a disciplined approach to new store openings. In H1, we had 45 net store closures and 106 fewer stores year on year. This compares to a sales contribution from net new space of 1.3 percentage points year on year, or 60% of the contribution from so-called new space. Overall, taking optimization of existing stores and catchment areas together with net new space, the combined benefit to sales of our strategic actions on our store estate was 2.1 percentage points.

22:52 This compares to a 0.7% net increase in our selling space year on year, clearly demonstrating improved productivity from our actions. Moving now to our outlook and guidance for the year. First with our market outlook. In May, we set out the conditions under which we could see a weaker, or indeed on the optimistic side, a stronger market growth outlook this year. We outlined an expectation for market growth to be muted in FY27, shaped by a weaker spending outlook for our core customer demographic and ongoing product cycle evolution at some of our brand partners, particularly in footwear. Since then, we have seen ongoing geopolitical and macroeconomic volatility driving a more challenging consumer backdrop. We saw this particularly as the second quarter progressed with elevated consumer cost of living pressures alongside a slower environment for high heat footwear product against a highly promotional market backdrop, particularly in the US.

23:50 As a result, and consistent with our Q2 trading statement last month, we have reflected these headwinds persisting into H2 within our view on annual market growth for each key region. We expect North America to be weaker, while our view on Europe and the UK is unchanged. Moving to our guidance for the year. Firstly, within our sales performance, we continue to expect net new space growth to contribute 2-3%. on profit before tax and adjusting items we reiterate our guidance range of 700 to 800 million pounds given the macro and industry backdrop and our two biggest trading periods yet to come we believe it's prudent to continue guiding to a wider range our free cash flow of 460 million to 520 million pounds is unchanged underpinned by our ongoing cost and capital discipline In line with our capital allocation framework and confidence in our medium term trajectory, we are committed to delivering attractive cash returns to shareholders.

24:50 The board has declared an interim ordinary dividend of 0.4 pence per share, 21% higher year on year, and we are on track to complete the current 200 million share buyback this financial year. We reiterate our confidence in our cumulative free cash flow target of at least 1.4 billion pounds over three years and remain committed to our rolling annual share buyback program. With my review concluded, let me hand back over to Regis for the business update.

25:20 Thank you, Dominique. Let's move now to the business update. Our five strategic priorities are the following. Strengthening and diversify our product range. driving store productivity and optimization of our fashion portfolio completing our global e-commerce re-platforming accelerating ai adoption and taking data-driven customer personalization to the next level let me briefly cover ai data and loyalty before going to the first three priority in more details On AI, our approach is practical and pragmatic. We have two priorities. First, how AI can improve our customer experience. Second, how AI can improve our productivity.

26:09 On the customer experience, we are exploring how customer can discover and buy JD product directly through AI platform. In US, we are one of the first retailer to achieve this milestone. customers can complete their entire shopping journey within the AI platform, from discovery to payment, thanks to our partnership with Google, Stripe and Commerce Tool. We are actively ramping this up to reach more customers. This is an early example of how shopping journey are changing. 25% of online shoppers in the US use AI as a primary source of research and recommendation. And also an example of how our technology partnership can help us to stay closer to our customers. On productivity, we are working on AI deployment across JD full value chain, from inventory replenishment, markdown optimization at the individual store and queue level, and to customer service automation.

27:06 For example, at EBIT, AI powered voice agents already handle 40% of customer service calls annually, reducing the cost per service request by around 30%. On inventory replenishment our merchandising team has developed an AI tool to optimize availability at SKU store level with a plus 1.5 percent sales impact versus a control group. On markdown optimization we are using AI to analyze stock sales and demand data across our store to identify end of life and broken size inventory to redistribute in order to minimize markdown and maximize sales. The tool automates a highly complex decision-making process that was previously impractical to perform manually.

27:56 In the test, we asked AI to process 3.2 million data points per second to deliver an improved sell-through of 70% versus 57% and a net profit of 1 million pounds on this specific test. Early days? but a lot of opportunity to do better what we do for a living to have the right stock at the right place at the right time and at the right price on data the first step has been to develop our loyalty program JD status has now passed the 10 million active customer globally in the first half status member account for 40% of JD UK in-store revenue and 45% of all JD US transactions Status members have average order value approximately 20% higher than non-loyalty customers. It gives us a tool to build a strong and unique relationship with our customers with better insight into how they shop.

28:54 Those insights will help us to drive our personalization engine and to develop more services, more experience and products for them. For example, in the first half, each targeted communication generates over 1 million pounds in incremental sales against control groups. early days for us but we have plenty of opportunity to leverage our data to deliver more sales and profit going back to product we have shown this slide before but it's a good illustration of the strength of our model and how product range is evolving and how we capture trends quickly with our agile and multi-brand proposition In footwear, performance running and newer, not sneaker styles are gaining momentum. While relatively small today in our mix, Mary Jane Ballets Flat, Ballerina, Loafer, and brands like Birkenstock, UGG, and Havainas are supporting continued growth in the other category.

29:55 And the question we ask ourselves, is the future of sneaker a revision of a formal shoes? Whatever is the future, we will win with a winner. In running, we have now two subcategories, retro running and new running with On, Oka, Salomon, Vomero Plus, all growing very fast. Running clubs and gyms are becoming the new nightclubs. health fitness and well-being are increasingly a priority for our core customers this shift of customer trend within our running category is helping to offset the year-on-year mix decline in retro basketball and retro football category in apparel performance and street fashion continue to be the standout categories The data shown on the slide is for the UK and Europe, but the direction is consistent across all our regions. In the US, our growth in apparel is fueled by street fashion and our own brands and licensed brands. They represent around 15% of apparel sales and allow us to respond quickly to new trends and offer compelling price points. They also provide structural margin benefits.

31:05 With products unavailable elsewhere, we have greater control over pricing and less exposed to the promotional dynamics that affect the broader market. We combine the expertise of our industry-leading buyers and merchandisers with insight from thousands of young store colleagues around the world. This keeps us close to how our customers shop and how trends are changing. This is why we are broadening the assortment across athletic leisure, streetwear and performance, more brands, more style and more trends, all carefully curated for the JD customer. Even more important, we don't just sell brands, we shape what the brands sell. Today, around 50% of our apparel assortment and 30% of our footwear assortment is exclusive to JD. This is a real competitive advantage.

31:57 We combine our deep customer knowledge, our clear positioning and our scale to work with our brands partner to develop products relevant to our customer and unique to us. For the brand, we bring something equally important. Scale and access to a large, clearly defined customer base. These make us their number one strategic partner. And for JD, create differentiation, reduce direct price comparison, and give us greater influence over the product we sell. As the market matures, I believe this becomes even more important. This is why we see exclusive products as a core competitive capability. It makes us unique for our customers and for our brand partners.

32:43 The second strategic priority is driving better store productivity. There are three parts, optimizing the estate, converting stores where other fashions can perform better within the demographic and continuing with fewer, bigger and better stores. As Dominique highlighted, we continue to review every store and invest where we see the best customer and financial returns. at ebit we now started the program previously announced to close around 170 lower performing stores over the three years in eastern europe we are moving to a franchise model with our partner sport vision subject to regulatory approvals stores in existing market except poland will transfer to sport vision and jd will also enter six new market through this capital light model In Germany, our restructuring is now complete.

33:41 We have consolidated to a core estate of 62 stores, providing us with a stronger and leaner base from which to improve performance. In North America, store conversions are on track. We expect to convert or close all standalone finish line stores by the end of financial year 28 and to complete around 60 city gear conversions this year. The aim is straightforward. Put the strongest fascia in each location and improve the return from the estate. In the UK, we opened JD flagship store in Cardiff and Sheffield and closed 17 stores. This is fewer, bigger and better in practice.

34:26 Overall, a 0.7% increase in net new space contribute 2.1 percentage points to group sales in the first half, which give us confidence in the strategy. Beyond our own store estate, we are building out our international franchise platform with a focus on driving the JD brand into new and high growth market. Further to our work in Eastern Europe, we have signed a long-term agreement with Grupo AXO, Mexico's leading omni-channel retail distributor, to operate more than 140 JD stores starting in 2027. Mexico is a market of over 130 million people with a rapidly growing active wear sector. This capital light model accelerates our global reach while remaining consistent with our disciplined approach to investment.

35:23 Today, we have 83 franchise JD and courier stores in Africa, in Middle East and Asia. With Mexico and Eastern Europe to follow soon, we will move to well over 250 stores soon, supporting our margin and return on capital employed. Turning to e-commerce, we have now launched new platforms in the UK and Ireland, following successful implementation last year in North America, Southeast Asia, Italy and our UK outdoor business. The remaining European markets are on track for the second half. We are already seeing benefits. For example, outdoor online sales progressed well in the year following its move to Shopify in January, enabling more orders fulfilled from stores. Across the group, online organic sales grew by more than 5%, and online now represents 20% of overall sales.

36:20 Re-platforming is a foundation, not the endpoint. With the benefit of better technology platforms, we are actively exploring and testing e-commerce marketplace proposition across the group to broaden product choice for our customer and using AI to improve product discovery and conversion. We are also exploring social commerce format. For example, DTLA TikTok shop is already a top 10 account in the US in its category. driving meaningful incremental traffic and transaction a proof point we are looking to build on across our other fascia we will also build on the agentic purchasing capability now live in the us and the jd fascia The most important point is that our teams can now test and launch improvements materially faster than before, from search through to checkout and post-purchase service, while enabling new services and propositions that will propel JD Omni channel offer forward. Our priority for the second half and beyond is clear, drive growth and improve profitability.

37:28 that requires different action across each of our regions. In North America, we will keep building awareness of the JD brand, supported by store openings and conversion. Apparel, and in particular women's wear, is one of our biggest growth levers in North America. A stronger apparel proposition drives traffic, basket size, improved margin mix, and makes our store a more distinctive destination. Apparel penetration in North America is still meaningfully below other region and closing that gap is a clear priority. More broadly, we are taking action to optimize the store estate in Europe and we are reducing supply chain and logistic costs.

38:14 Automation is ramping up our airline distribution center across both store and customer fulfillment. We have now one down our smaller Belgium distribution facility. In the UK, fewer, bigger and better continue to be our priority alongside cost productivity. We are starting to see encouraging results from our work to improve the outdoor business, while our gym business continues to perform strongly. Across all regions, we will maintain the same cost and capital discipline that support us in the first half. And for North America and Europe in particular, the ongoing development of our omni channel and royalty offers are key driver of our plans to grow our market share sales and profitability Overall, and in a more normalised market environment, the biggest margin opportunity is in Europe, where our action on stores, supply chain and digital should support a much healthier operating profit over the medium term. We also see a clear opportunity in North America, where we have grown to nearly £5bn of annual sales in less than 10 years. In the UK, our focus is to maintain our full year 26 margin through productivity and cost discipline.

39:34 To conclude, this was a resilient sales performance in the first half, despite a difficult market. We stayed close to our customer and maintained tight control of cost and capital. We made tangible progress on our strategic priorities. by broadening the product range, improving the store estate, completing more of the e-commerce re-platforming and scaling AI and royalty. Our agile, multi-brand model and growing on-brand offer is helping us respond as footwear and apparel trends change, while online continues to grow, supported by our new technology platform. tight cost discipline means that we held our life for like opex flat year and year and our balance sheet is stronger with net cash improving by nearly 300 million pounds year on year after 260 million pounds of cash return to shareholder our full year guidance is unchanged from the q2 trading statement Against the challenging backdrop, we are controlling the controllable.

40:41 We are broadening and strengthening our product proposition with more brands, more trends and more exclusive products. We are improving the productivity of our stores and our capital. And we are building a much stronger digital and data capability to understand our customers better and serve them better. At the same time, we remain disciplined on cost and capital while continuing to generate strong cash and invest behind the area where we see the greatest returns. That is what gives me confidence and puts us in a strong place to deliver sustainable growth and stronger profitability over time in a more normal market environment. Before we move to Q&A, I want to thank all our colleagues around the world for their continued hard work and focus. Thank you.

41:31 We will now take your question. We will now start the Q&A. If you're a Southside analyst dialed into the call and wish to ask a question, please use the raised hand function at the bottom of your Zoom screen. If you've dialed in, please select star 9 to raise your hand and star 6 to unmute. We'll take our first question from Jonathan Pritchard with Peel Hunt. Please go ahead. Jonathan, your line is unmuted. Please go ahead. Okay, we're unable to hear you, Jonathan. So we'll come back to you shortly.

42:17 Oh, we can hear you now. Please go ahead. We'll move on Jonathan and come back to you shortly. Our next question will come from Nick Barker with BNPP. Please unmute your line and go ahead.

42:36 Good morning, everyone, and thank you for taking my questions. Just two from me. Firstly, on the re-platforming in the UK, I was wondering if you can give us a bit more colour as to what's happened to conversion there and where it's had the greatest impact. That's the first one. And then secondly, I noted that you're maintaining the sort of free cash flow guidance, but lowering capex slightly. I was wondering if you could take us through the moving parts of that. Thank you very much.

43:11 Re-platforming and Dominique will answer the free cash flow. Re-platforming in the UK, in fact, it's not only one. Re-platforming is that we have re-platformed our outdoor business, which is for brands, as you know, moving out of our existing platform. and we did that in January and from that time our sales in total outdoor are up 25% year on year so definitively it's proving to increase the conversion and increasing our sales and that has been in line with a very good first half of our outdoor business so it has proved to be beneficial not only to our online business but to our client too For JDUK, it's too early to say, it happened in August, so I think that the first things we are seeing is some good improvement in terms of the conversion, especially on the checkout page.

44:12 So we'll update you at the end of the year. I will let Dominique answer your question on cash.

44:18 Hi, Nick. Yes. So our guidance on pre-cash flow is unchanged from where we put it in May. I think it's fair to say there's an element of conservatism in our position at the May number. So notwithstanding a slightly lower profit expectation and guidance to be updated in August 2020, was still confident in delivering the free cash flow you pointed to capex yes slightly down 350 to 400 against our guidance of 400 at the year end i think that just reflects our highly disciplined approach to where we spend our money on capex we continue to invest in the business as I and Reggie spoke about in our presentations. Our store capex increasingly around 40% is on reinvesting in new estate but we continue to invest in new space but in a slightly softer market.

45:08 Our criteria mean at the margins there are slightly fewer new stores that we feel comfortable opening at this point in time. So that all flows through to a slightly lower capex spend for the year. And then overall we see an improved position on working capital outflow this year compared to last year so all of those factors flow through to underpinning our free cash flow guidance thank you very much thank you our next question will come from richard taylor with barclays please go ahead yeah good morning um hopefully you can hear me um can you tell us what you're thinking strategically

45:50 great thanks very much sorry just a question really on range can you tell us what you're thinking strategically about products what's your your biggest brand partner goes through a weaker innovation period um are you willing to make more significant action on backing brands that currently have momentum and versus sort of waiting for a turnaround um and aligned to this can you talk us through about your exclusives um you know i think you mentioned 50 on the call um is this higher or lower with some of the the higher growth brands And then a separate question on inventory. I see it's up around 2% constant currency. This is sales down a percent or so. I really should, you've had back to school. So interested to know what inventory would have been excluding that sort of timing difference, but just more about how you're thinking about inventory going forward, given, you know, expectations of, of lower light flight sales growth from the second half from consensus.

46:44 um so i guess you know inventory is still up but the outlets look great and does this still reflect oversupply products in the industry thank you okay i will take the first two and dominic you will go through the inventor my chance okay um range we are not waiting for for anything we are um for almost three till last year so it has been us building their own brand in uk and in europe so i think we as i will always say we are proposing we are selling to our customer what they want to buy and uh and if they want to buy nike we propose nike if they want to buy on if they want to buy yeah so our merchandising is fully flexible as you know we don't sell our space contrary to some other retailer our space is fully flexible as we don't sell the space so we have a full flexibility and I think our assortment is moving linked to the trends and not nothing else than the trends and the appetite for our customers for different products so and we believe that we are the well placed and our market share in fact is higher with some of the new brands and it is with our number one brand so it's replaced that and our return on space is that is the same

48:14 is is higher with uh with nike's and it is with the other brand showing that we are investing for the other brand so all of that shows that we we are not waiting anything and uh we're just acting and and moving our range uh with the trends and with our customer taste in terms of exclusivity it's a it's pretty stable it's around 30 in footwear 50 an apparel in fact it is more with other brands than it is with Nike this is where we so there is no difference in the way we operate with different brands so we operate on the same with the same playbook which is around how we make sure that we have a distinctive unique offer for our customer and that's the way we work with all the brands so there is no difference between one brand to another one there is brands who are more agile than other brands and that gives has more ability to have exclusivity and some brands are more respectful or having a more tight distribution policy is how we define products that are the best for our customer and how we do that in partnership with the brands and we are the number one partner for most of the brands so our size of business means that we are the number one number two partner for all the brands there is no difference for in any of our positioning with the brand and we continue to develop as our sales has been more you know

49:46 there's a big difference between food and apparel why it is higher exclusive because it's a it's just it's it's a more agile production um type and that gives us the ability to uh to react more quickly and i think that you have seen our performance in apparel plus focus on uh in a muted market that's a great great performance which is a attribute to the quality of what we're doing when we have the full flexibility that we don't have in footwear because of the difficulty to uh to change uh more than the way you produce footwear as quickly as we would like to but uh i think uh be reassured we are working in the same way with all brands inventory yeah um hi richard um yeah so our stock was up two percent like for like on a on a year-on-year basis um

50:35 It's difficult to be precise about exactly what the back-to-school impact of that is, but it's true to say that for North America as a whole, back-to-school was delayed. Labour Day was a week later and all of that got things backwards. So we feel comfortable at the end of the first half in terms of where our stock position is. But I think, as you know well, we've got a good track record of managing our stock tightly. We buy tightly and we manage it and turn it over well. we've got the biggest period to come but uh obviously been through back to school we have black friday and peak to come that is the key period where you know managing our stock through the year will will come to um show uh how strong we are in that area um the market position yes there is a lot of stock out there um it's often the case when you have a softer softer period i don't think we see that materially changing through the first half we've seen a promotional environment that has resulted in price investment we've taken we expect that to continue through the second half so i don't think we see any material change from where we've been in the first half through to the second half in terms of stock positioning in this industry as a whole and impact on our margin rates thank you very much Our next question will come from Anne Critchlow with Berenberg.

51:59 Please go ahead.

52:02 Good morning. I've got one question please on the online re-platforming. I think US online sales grew quite strongly as a result of the new app and I just wondered what the impact was in your view and whether you expect to benefit on UK online sales in the second half. Thank you.

52:25 Yeah, so I think you're right. We grew in the US quite strongly online. I think that what we have seen is a faster checkout, especially the one-page checkout to increase our conversion on this part. So I think we are expecting I think that the most important is appetite for the consumer so we are not expecting that to be a revolutionary I think it's more an evolution and it's more it give us a lot of option long term we were not able to do click and collect same day in our store because of our old platform we were not able to marketplace there's plenty of limitations that we were limited to and that will should create should help us to grow our digital business in the coming 18 to 24 months it will not be a you know a thing and it's moving double right away but I think it's more a mid-term continuing growth of our online penetration

53:42 thank you our next question will come from Richard Chamberlain with RBC please go ahead thank you very much morning guys um a couple of questions please I guess one thing that surprised me reading the statement today was that the um you said that the statutory gross margin decline was partially offset by higher marketing contributions I would have thought in a more subdued demand environment marketing contributions might be down so I guess it would be helpful if you could explain what's going on there what's driving that um that increase uh that's the first one and then the second one was it was there a positive uh margin mix effect gross margin mix effect in the in the first half from the outperformance of apparel versus footwear thank you

54:32 ok so the mix as you know margin is similar so there is no mix really in fact because our margin in both categories are very similar so there is no element of that on the first one i think you know when market is tough uh you need to create demand so you need to invest in marketing and i think that we have been able to capture more of that from the brand because they want to create demands they want to create appetite and they know that jd customer is the most important to create the trends and to create that so i think they have diverse some money that they have for other brand or for other way of promoting their product to us and that is a reflection of that is a reflection of our size and our scale so that's the two elements that is driving our increased marketing contribution from the brand i think that in a top market you select the best retailer and we are the best retailer sure okay thank you Our next question will come from Jonathan Pritchard with Pill Hunt.

55:39 Please unmute your line and go ahead.

55:48 Definitely not working.

55:50 Hello? Hello? Can you hear me? We can hear you now Jonathan. Sorry guys. First of all, brand recognition in the US. Could you just give a bit more hello on that perhaps please? um then following up on richard's question on the gross margin where do you think we'll be in the second half could you just perhaps give us a bit of guidance as to whether those marketing contributions will continue or what the underlying investment will will be and then lastly should we look upon fy27 as as a trophy what what are your early thoughts on fy28 okay remind me the first question

56:34 so brand recognition in us i think that's you we continue I think the main driver of our JD brand recognition because that's the one you were talking about is linked to our store estate and to the increase of our store estate we have a you know we have done a fantastic job in New York and we see that it's a very influential and very important market and we see that our growth and we see the brand recognition going up the rest of US we are doing you know city by city key market by key market because it it would be wrong to try to to do all us in one goal so it's linked to the conversion and to opening program but we're making good progress and we're looking forward to show you how this uh this is on on the field when we go to uh florida uh in october

57:35 Thank you, Regis. And Jonathan, on your other two questions on gross margin, our statutory gross margin was down 20 basis points. That does reflect two dynamics. As we've been saying, we have made targeted price investments to remain competitive. That's around 50 basis points in that half. um and that's sort of a new space and like like like for like down about about 60 places points and that's been offset by uh the marketing contributions that we've had uh really spoke about those earlier on in our own internal accounts not PEX but IFRS we have to put those in marketing so in the first half down 20 basis points 50 basis points investment in price offset by about 30 basis points on marketing contributions I think as you look forward into the second half we're not seeing anything that will change the price investment that we'll need to make as we go through h2 so i think around that at least 50 basis points i would say remains a valid assumption to roll forward there are likely to be some marketing contributions it's very difficult at this stage to say exactly what those will be as we build those campaigns in our brand through the second part so i think the underlying point is to to roll forward the underlying price investment through the rest of the year In terms of looking at FY28, well, we still have the biggest part of our FY27 to go.

59:05 So we haven't yet prepared our budgets for FY28. It's important that we see how the second half trends persist and how we see particularly peak season through December performing. Having said that, I think if you look at the top line overall, I don't think we see anything today that will result in a material change in the macro environment, in the consumer environment, or indeed in the footwear side, going to FY28. No particular silver bullets there to change things materially. We do continue to invest in space, both improving our existing store estate and new space, and I think maintaining a 2% to 3% uplift from that sensible approach inflation continues I mean we're all seeing inflation starting to increase a bit now so I think that's one that we're monitoring closely clearly we're taking a lot of actions around how we offset that but as the headwind potentially gets that will clearly be a harder point we need to work on um so i think you know for us at this point in time too early to be definitive about fy28 but you know continuing to focus on controlling controllables that we're doing just ensure that we enter next year in the best position possible okay thank you our next question will come from Anubhav Malhotra with Panmure Liberum please go ahead

1:00:35 Anubhav please unmute your line and go ahead with your question got it can you hear me now excellent yes all right just two questions from me please if you don't mind firstly just digging deeper into the gross margin and gross margin if I look by divisions i mean it's sporting goods and outdoors the margin grows uh growth margin over there rose 200 basis points just maybe a bit of color and what's driving the increase there and is that something that we should expect to be repeated in the second half because that was clearly offset uh from daily sport the daily segment uh margin going down 60 basis points and complementary at least you're going down 30 basis points in the first half um and then secondly on the franchisee model decision in eastern europe 70 stores are getting transferred there maybe a bit more color on the driver of this decision and if there are any other geographies you may be looking to do the same in and also what should we expect in terms of any cash consideration from that and wealthy loss making stores and the sale would be kind of accretive to earnings or not really thank you

1:01:54 Okay, I will take the franchise one and Dominic will take the gross margin.

1:01:58 You start. Okay, yeah, I'll start with the gross margin. So, Annabelle, good to hear from you. I think what you picked up in the middle of that is our sporting goods businesses in Europe, outdoors in the I think what that reflects is a proposition that is probably more value proposition overall a more commodity proposition that's responding and resonating very well with customers at the moment and I think that that shows the diversity of our business model alongside the sports fashion business that allows us to sell in at good full price to that customer set and also I think our businesses in Greece and outdoors have done a really good job over the last 12 months of improving their stock position which has allowed them to put more newness in front of customers we see it particularly in our outdoors business and you know good old-fashioned retail if you put units in front of customers improve your stock you see your gross margin improve so I think on an annual basis as we go into second half that will persist um Overall for the group, I think the answer I gave to Jonathan earlier on is that when you look at the balance between sports fashion and the sort of products, particularly footwear products that we are seeing versus the relatively smaller sporting goods, the overall price investment underlying at around 50 basis points through the year is probably the best place to think about at the group level.

1:03:23 And concerning franchise, I think that it's a very good question. So when I look at the group and we are being clear where we want to operate by ourselves and where we don't want to operate by ourselves, and I think it's linked to a multiple... mainly three factors the first one is around size of the market the second one is around complexity to operate in the market and the third one is around you know ability to to operate in a market on the property and some of the if you take Eastern Europe you know the first element is small markets it's a complex additional small market with a different language some are in Europe some are not in Europe so different currency and I think that you know it's a reflection where which is a reflection that I'm having at a group level which is how we to the best of the two worlds localize and leverage our scale and when you look at eastern europe we definitely didn't localize and to be fair it's difficult for me to blame the team when the team is looking after you know big market looking after a small market it's a it's it's not a priority and uh and you know in some of the market we are doing less than or much less than what we're doing in one store in trafford so so this is a reflection around it and at the same moment those markets require love and thunder as much as any market

1:04:54 and and require adaptation to the local uh customer so that's why we believe the best of the dual is having a local partner through franchise and at the same moment leveraging our scale and i think the great thing is that sport vision already operates those market for a long time it's a big business in those market with a big and a very successful sporting goods business and they had a an equivalent of jg or a copy of and they recognize that our expertise is worth doing a partnership and that's uh that's what we're doing so it's the best of the two world operate at the with the best format and the best concept that exists in our industry which is jd and at the same moment being able to localize to a partner that live and breathe those small country and that's that's that's the strategy behind that in terms of financial the way it works is that we will uh we will have a inflow of cash because we will stop to uh to have stock in for those countries and that will come gradually because we have place order so this stock will go to our sport vision and this we will sell this stock to sport vision in the coming months so that will have an impact in the coming six nine months in terms of working cap there will be an impact on our on the assets that we have because we will so we are we are selling our assets in those countries to sport vision

1:06:26 and so that will have a positive impact in terms of our cash flow and reduce our cash but at the group level is not significant and in terms of profit we were i would say breakeven on those countries so we will make a profit where we were we were breakeven so it's it will not be very material for the group but i think it it shows a strategy around how we get the best of the two world more localization fewer assets focusing on key markets and at the same moment having a global reach to our customer through the best Our next question will come from Grace Smalley with Morgan Stanley.

1:07:20 Please go ahead.

1:07:23 Hi, good morning. Thank you for taking my questions. My first one would just be a near term on current trading. I appreciate you don't comment specifically and we have your trading update in November, but Could you just remind us about how we should think about quantifying the back-to-school shift in the US between the second and third quarter and is it fair to think that overall underlying trading trends excluding that back-to-school shift remain broadly unchanged or there any other puts and takes you should be considering when thinking about modeling our Q3 like-for-likes and then a follow-up question please on the industry uh imagery and promotional dynamics so um dominic i think you mentioned like still excess inventories out there and that you know that continues in terms of the promotional environment into the second half simply to h1 well i know i appreciate you don't have a magic ball but would you what do you think is a reasonable timeline for the industry to work through the excess inventories that are out there in the trades and is there a risk that this could be a continued overhang into next year and any kind of color you could provide in terms of where you see pockets of excess imagery in terms of any specific product categories or regions would be helpful and then sorry I have a third which is also a follow-up just on your comments on fiscal 28 again no you're not guiding specifically but I've seen from your earlier comments that there's no kind of obvious immediate inflection on on the macro side or in terms of the footwear

1:08:56 lifestyle product cycle just wondering on product specifically um as you're looking at like building your order books into next year and the feedback from buyers that have seen kind of the brand's product for next year in the showrooms just what other picks and takes you're seeing in terms of product category drivers that we should think of going into next year thank you very much

1:09:21 Okay, I will do the last two and Dominique will do the back two. So, 2028, I think I will not explain more than Dominique. I think that on your specific question around how we look around buying, I think that we have not seen on macro, there is no element that says that there is something very different than what we've seen today. So, I think that we are not expecting something new. We continue to see that we continue to see the same momentum around the key brand so there's nothing that has dramatically changed and we don't see something dramatically changing don't forget it's a it takes time to build franchise and it takes time to get there i think the best example is that salomon xc6 we are start we start with xc6 4 years ago I remember I was there and we said we're going to push at a moment and it has taken 3 years to get to something which is starting to be meaningful and it's starting to really look at a key franchise worldwide so it takes time and I think you need to not forget it's not a if you if you scale a franchise too quickly you kill it right away and whoever you are it customer need time to build franchise and i think xc6 is for me the best example it's a key franchise it's now part of our top 10 and it's working

1:10:52 everywhere but it has taken four years to get that to what is today a significant shoes and it will not be right for any brands to believe that you can do in one year launching a franchise and scaling that will destroy each franchise and we have seen that every attempt from the brand to go to scale too quickly they kill the franchise they want to so this is this is about fashion this is about fashion trends and that need to be nurtured to be developed at a speed that is in line with the consumer so no big change for 2028 as we speak today in terms of the industry i think your question is I think it will stop to be promotional when everyone will recognize what we said two years ago, which is a maturing market.

1:11:47 When people will stop to believe that it is a double digit market, they will stop to buy stupidly and too much. And I think that, you know, our key competitor has been great in doing the wrong thing, which is to say everything will go rosy in September. we were proved to be right at that time you were looking at us saying well i think that so this is a you know as soon as everyone will recognize that this is an industry that is maturing a sneaker is is the best choose in the world is a the most popular shoes in the world but it is now 60% or 55% of the market so that means that the double digital that we experiment in the last 10 years would not happen and I think that as soon as everyone recognize that they will stop to buy for a market that doesn't exist and that means that you will not have excess stock so that's as simple as that so you know it's we are in that place and you have seen how disciplined we are in our buy we need the industry to recognize the same and to

1:12:47 be as disciplined as we are and grace just to come back on the back to school point i'm not going to give a you know specific numbers on that it would be spurious accuracy but had a you know had a small impact um i think the bigger the bigger point to bear in mind is what we said is we don't really see um the underlying market conditions changing from q2 into q3 and q4 around where we are our cycle where our consumer is um and you know the resultant promotional uh backdrop that we're operating in so i think those are the key factors

1:13:19 Okay, great. Very interesting, Carla. Thank you both. Our next question will come from David Hughes with Shorecap. Please go ahead.

1:13:29 morning all uh thanks for taking my question a couple from me firstly just in terms of capital allocation um obviously you've increased the dividend payout um this year in terms of your dividend coverage you've still got quite a lot of capacity there um do you have a target coverage or target yield that you're looking to get to in terms of shareholder returns uh and then uh secondly in terms of kind of the um the opportunity in mexico that you recently announced um obviously you're planning the 140 stores as a first blush how how much do you think you kind of potentially could get to in the medium terms you have an outlook there that you're targeting thanks

1:14:13 Okay, Dominique will do the capital and I'll do it. Yeah, so it's a sexy Mexico. Sexy Mexico, yes. I'll get the sexy capital allocation.

1:14:21 So, morning, Dave. It's a really good question. I think our dividend increase of 21% really reflects the increase in the dividend that we made for the full year last year, where we updated our capital allocation policies. and clearly beyond investing in the business which we continue to do maintaining leverage headroom for the buyouts of genesis production in two to three years time beyond that you know shareholder distribution is a key part of our of our overall strategy and capital allocation we have a rolling 200 billion share buyback and that is we're well through that for this particular year and at the full year we said that we would grow our dividend in a progressive way over time to get to be to have a yield in line with the sector now I think you know that the sector is around two plus percent but below that at the moment we're not rushing to that but with you know around a 20 percent increase in the full year dividend last year you can see our intent and we'll deliver that over time all right thank you Mexico sorry I was waiting for some

1:15:36 so Mexico so 140 store I think the main opportunity is not the number of store is the size of the store I think that what we are taking over is small store it was a tough branded it was a only footwear and the project is around creating a very distinct offer and I think this is where it's very interesting for you because you know is sure how you know they didn't need us because they already existing they already have all the brands and all the stuff but they believe that the jd format is a much more um for a full format and much more sustainable format and they wanted to invest and pay us royalty in order to get access to our knowledge our self-affair and i think that showed you how how our strongest idea in proposition and concept and uh and how we we are able to create value so that's the purpose of the axo feels that we were adding much more value to and the current propositions that they had and in terms of number of store I don't think it's a lot more store but it's definitely bigger better store and that's what we are embarking on is to extend to create a real destination a real offer where you have footwear and apparel together which create a distinctive concept and really leverage your position so that's

1:17:09 all about the project Great thank you very much. Our next question will come from Kate Calvert with Investec. Please go ahead.

1:17:26 Morning everyone, just two for me. The first question again on Mexico and I suppose following on from your answer to the Eastern European franchise. I suppose Mexico is actually a very large market so could you sort of talk about your thinking behind why you went in by franchise rather than perhaps using your own expertise from some of your US formats like Shoe Palace and doing it yourself because obviously it is a very attractive long-term market. and my second question is just on North America I was quite interested to reduce on your comments that you had a good opportunity in the US for women's wear as this is an area that JD has struggled in the UK historically do you think your sort of consumer perception of the JD brand is slightly different over there in terms of being slightly more female friendly or are you sort of thinking of doing something slightly different versus what you've been doing in the UK and Europe thanks

1:18:27 Thank you, Gaetan. So good question. Mexico, as I said, there is size and right size is there. The access to property is not there. So if you are not a local player, you don't access property. So that has been an easy to do business or not. And it's not always easy to do business in Mexico currency. security so that's the two criteria so there is three criteria the size criteria is definitely on the on the on doing by ourselves but on the property access and on the the way to do business it is definitely a franchise market for us and uh and that's why uh you know and it's interesting when you talk with our American colleague they see Mexico as a difficult a very difficult place so they were not a Russian because they had the opportunity to Shubas and Shubas doesn't have a franchise and a strong as strong model as JD to go there but so it's definitely that which is the same as Indonesia same as Philippine the same as South Africa the same as Middle East you know it's all this country where you know we believe that it's a much better to our local partners and to operate by ourselves in terms of the women's wear i think we see the same things in the uk we have done a very good job to uh to uh to increase our range in women's wear and i think that in uk proved to be beneficial the same as we do in us it's all about you know finding the speed to market and i think we were we had a model that was too

1:20:01 slow that was right for men men are boring but women need more change and more diversity and i think that we have built this model with very successfully with adidas with drop every six weeks which is something that so I think we are finding the recipe and it's not it's all about product and all about the ability to connect and I think that we have a good connection with a woman customer in true product in the US and that is where we are investing and that we are seeing some really very good results in the last 12 months great thanks so much Our next question will come from Wendy Lu.

1:20:48 Please unmute your line and go ahead. You can unmute by pressing star six on your line. Thank you. Wendy, you unmuted and remuted. So if you would like to press star six again, that should unmute your line. Thank you.

1:21:08 Sorry, can you hear me okay? Hi, can you hear me okay?

1:21:12 Yes, we can.

1:21:16 I just have a quick follow-up question from Grace's questions earlier on footwear growth I wanted to understand what is required for footwear to go back to growth I guess two questions here one is how do you feel about newness coming from major brands over the next couple months and quarters Two is, I think you mentioned that the industry probably is too complacent on building inventories on footwear, but you seem to be relatively, I think, comfortable with your footwear inventory. I was wondering if you can comment on, I guess, how do you feel about your footwear inventory, both in terms of size and value, but also in terms of composition?

1:22:14 yeah i think that you know we feel will not say something different we feel good but you know this is retail if i you know we always have too much of the things that is not good enough and not enough of the goods that is selling so so this is about retail but we are in a normal position where yeah i wish to have a little bit more some of the product and i wish to have a little bit less on I think it's a good question. I think the first thing is what you said before which is and what we said before is to have a good stock position in the industry because you know if you have too much of something and as it is today you have discount and customer waiting for the next discount to come because it's interesting to see that in Europe and UK it's mostly driven by a lower ATV so a lower average value that is driving the growth and the slightly positive in uk and slightly negative in europe but we this is mostly around the average value which i think is about a reflection on two things there is too much product on uh there by the things and some appetite about something new and and

1:23:49 exciting uh because at that moment you know paying 120 or 150 doesn't matter if that's the shoes you want so it's a little bit of two in u.s it's it's more uh around you know high-heat product and the fact that there are products that everyone wants to buy and and uh rushing to so i think it's about creating the the heat in the industry but the main element is to stop the promotional activity for next next uh next month to get a better deal and that is asking for me the first element and after that it will come we we know it's always you know uh always helpful when there is it uh created by the market leader which is not today's the case but we see some great things happening uh you have seen what we have seen in uh during the summer with Samba Jane ballet shoes from Alidas we are seeing that on Cloud Tilt we are seeing that through Salomon 66 so there is element of that it's true that having the market leader been in a leading position especially in the US it is part of the recipe to have a market that is in a better shape Thank you very much Thank you. Well there are no further questions on the webinar so I'll now hand back over to management for closing remarks.

1:25:22 So thank you for your question. It's always better to have it in person, but I hope you will enjoy Adidas Innovation Day. I was talking with Bjorn and Matthew yesterday, so they were very stressed to make sure that they showcase in the best way possible innovation and running. So I hope you enjoy your day. And I'm looking forward to see you next time in person. Thank you. Thank you for joining today's call. You may now disconnect.