JD Sports Fashion Stock

Good morning, ladies and gentlemen, and welcome to JD Sports Fashion Plc HY '27 Results Presentation. [Operator Instructions] I'd like to remind all participants that this call is being recorded. I would now like to hand over to the CEO of JD Sports, Régis Schultz, to start the presentation.

Good morning, everyone, and thank you for joining us for our half year results. I'm Régis Schultz, CEO of JD Group, and I'm joined here today by Dominic Platt, our CFO. On [indiscernible] for the presentation, I will start with the key message from the first half. Dominic 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 now 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 increased, while the footwear product cycle continue to evolve in a highly promotional market. Group organic sales were down 0.7%, including a 2.1 percentage point contribution from new selling space despite having over 100 fewer stores overall, in line with our strategy of fewer, bigger and better stores.

Our response to a maturing market and challenging tragic condition is to control the controllables. That means focusing on our customer, bringing them the best, latest and greatest product, investing in our omnichannel proposition and maintaining tight discipline on our cost and capital. We are making clear progress against our strategic priority and delivered against significant milestone. We are investing to improve what we offer to our customer and to enhance 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 style. Apparel and Accessory increased to 36% of group sales in line with our strategy, supported by a strong product lineup implemented by our own brand and license brand with faster and more agile reaction to customer preference.

Online was another area of progress. Online sales grew by more than 5%, rising to 20% of group sales. This was supported by the continued rollout of our new e-commerce platform, Shopify and commerce tool, which unlock new capability, expand choice and service for our customer. Our discipline on cost and capital is again strengthening our balance sheet. Net cash improved by nearly GBP 300 million year-on-year, even after returning GBP 260 million to shareholders to buy back and dividends 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 guidance is unchanged from the Q2 trading statement. Profit before tax and adjusting items of between GBP 700 million to GBP 800 million and free cash flow of GBP 460 million to GBP 520 million. 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 financials in more details.

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 Régis 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. To stay competitive and engage with our customers, we may control 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. Overall, the group's operating profit, including lease interest was GBP 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 GBP 282 million. Our adjusted earnings per share were 13.7% lower on a reported basis at 3.97p with a lower percentage reduction compared to profit before tax and adjusting items, showing the economic benefit of our share buyback program. For completeness, statutory PBT was GBP 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 GBP 50 million on H1 last year. The free cash outflow of GBP 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 0.4p per share, representing 1/3 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 GBP 168 million. As Régis said, that's an improvement of almost GBP 300 million versus net debt of GBP 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 U.K. 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 U.K., online sales were flat year-on-year. The overall 20% penetration is an average, and it varies across the group with the U.K. 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 U.K. As Régis 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 of 5.2%.

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 U.K., we believe there is significant scope for growth in this category, particularly in North America. In footwear, organic sales were 3% 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 Régis will touch on later. Finally, the share of our other category, which includes outdoor living equipment and J.D. Gym's memberships increased to 4% of our sales mix.

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 U.S. 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% and like-for-like was down 4%. Within this, our J.D. 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.

Operating margin was 220 basis points lower year-on-year, largely due to deleverage impacts and the ongoing wind down of the stand-alone 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 significant, but short-term factor, this business was the primary source of promotionality amongst our fascias 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.

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 Heerlen distribution center in the Netherlands and the unwind of the associated double running technology and supply chain costs. As a reminder, we expect over GBP 20 million of cost benefits across FY '27 and FY '28 as these double running costs fully unwind.

In the U.K., 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. Underlying performance remained challenged, particularly in footwear in the promotional market, which 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, U.K. organic sales were down 1.6% for the half. The U.K. operating margin was 130 basis points lower year-on-year largely due to targeted price investments and operating cost 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.

Taking a look now at the profit bridge on Slide 8. Please note that for the purpose of underlying analysis, I have netted off marketing contributions in gross margin against the corresponding marketing cost 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 GBP 37 million and like-for-like sales of minus 2.8% at a constant gross margin rate represented GBP 92 million to the decline. The contribution from net new space and annualizations was GBP 20 million.

The next bar shows like-for-like OpEx inflation of GBP 45 million, primarily driven by inflation in our labor costs, including higher salaries as well as technology, digital and marketing investments. We maintained a strong focus on cost management in the half, delivering GBP 57 million of variable and structural cost reductions through labor 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 GBP 26 million, which is noncash, reflects a credit of GBP 13 million in the half versus a charge of GBP 13 million in the prior period. We expect an offsetting mark-to-market charge of over GBP 10 million in the second half. We saw a GBP 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.

And finally, Other, which is largely the impact of translation FX year-on-year was GBP 4 million. Against a challenging market and industry backdrop, maintaining our sharp focus on cost 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 automate internal processes and we progressed the rollout of RFID in our JD U.K. stores. We are starting to realize benefits from our Heerlen DC related to the technology and supply chain double running costs. 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, or 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, 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 GBP 241 million. Depreciation and amortization was GBP 450 million, up GBP 19 million year-on-year, reflecting investment in our stores, supply chain and technology. These repayments were GBP 303 million, up GBP 49 million year-on-year. This increase was partly driven by 7 lease payments made in the period compared to 6 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 GBP 433 million for the half. The change in working capital resulted in a net outflow of GBP 144 million, which compares to an outflow of GBP 263 million a year ago. This included an increase in inventory of GBP 308 million reflecting the typical seasonal investment in back-to-school stock and an inflow of GBP 164 million related to net payables. Gross capital expenditure in the half was GBP 175 million, down GBP 41 million year-on-year. Tax, interest and other cash outflows were GBP 132 million.

Overall, free cash flow was an outflow of minus GBP 18 million, an improvement of GBP 50 million on H1 last year. Dividend payments and share buybacks in the period were a combined GBP 144 million. Overall, we saw a reduction in net cash of GBP 143 million since the year-end, leading to a closing net cash position on the balance sheet of GBP 168 million before lease liabilities. This marks an improvement of GBP 293 million compared to H1 last year, after GBP 260 million of cash returns to shareholders over the last 12 months.

We continue to manage our inventory and cash with focus and discipline and maintaining an efficient balance sheet. Net inventory was up 2% year-on-year at constant FX rates, reflecting stock build ahead of the back-to-school trading period, including the impact of a deferral into August of the timing of back-to-school season in large parts of the U.S. We continue to take a disciplined approach to CapEx with a strong focus on returns. Gross CapEx for the half was GBP 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. Reflecting our discipline, our CapEx guidance for the year is now GBP 350 million to GBP 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 GBP 2.9 billion, representing net leverage of 1.5x. And including the Genesis buyout option in FY '30 and FY '31, our pro forma net leverage of 2x 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 GBP 1.7 billion. 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. While our stores and gym's 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 U.K., 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 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 U.S. peers, so it 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. 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 FY '27, 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 U.S. 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 U.K. 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% to 3%. On profit before tax and adjusting items, we reiterate our guidance range of GBP 700 million to GBP 800 million. Given the macro and industry backdrop and our 2 biggest trading period yet to come, we believe it's prudent to continue guiding to a wider range. Our free cash flow of GBP 460 million to GBP 520 million 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.

The Board has declared an interim ordinary dividend of 0.4p per share, 21% higher year-on-year, and we are on track to complete the current GBP 200 million share buyback this financial year. We reiterate our confidence in our cumulative free cash flow target of at least GBP 1.4 billion over 3 years, and remain committed to our rolling annual share buyback program.

With my review concluded, let me hand back over to Régis for the business update.

Thank you, Dominic. Let's move now to the business update. Our 5 strategic priorities are the following: strengthening and diversify our product range, driving store productivity and optimization of our fascia portfolio, completing our global e-commerce replatforming, 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 3 parts in more details. On AI, our approach is practical and pragmatic. We have 2 priorities. First, how AI can improve our customer experience. Second, how AI can improve our productivity. On the customer experience, we are exploring our customers can discover and buy JD product directly through AI platform. In U.S., we are one of the first retailer to achieve this milestone.

Customers can complete a [indiscernible] 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 shop [indiscernible] are changing. 25% of online shoppers in the U.S. 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 customer.

On productivity, we are working on AI deployment across JD full value chain, from inventory replenishment, markdown optimization at the individual store and SKU level and to customer service automation. For example, at EBIT, AI powered voice agents already handled 40% of customer service calls entirely, reducing the cost per service request by around 30%. On inventory replenishment, our merchandising team has developed an AI tool to optimize availability at SKUs store level with a plus 1.5% impact versus the 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. In the test, we ask 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 GBP 1 million 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 customers globally. In the first half, status Member account for 40% of JD U.K. in-store revenue. and 45% of all JD U.S. transaction. STATUS member have average order value approximately 20% higher than non-loyalty customer. It gives us the tool to build a strong and unique relationship with our customer with better insight into how they shop.

Those insights will help us to drive our personalization engine and to develop more services, more experience and product for them. For example, in the first half, each targeted communication generate over GBP 1 million 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 a newer not sneaker styles are gaining momentum, while relatively small today in our mix, Merigen-Ballast flat, Barena Laffer and brands like Birkenstock AG and Avana are supporting continued growth in the other category.

And the question we ask ourselves, is the future of sneaker revision of a formal shoes? Whatever is the future, we will win with a winner. In running, we have now 2 subcategory, retro running and new running with [indiscernible], all growing very fast, runing clubs and gyms are becoming the new night clubs, 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 U.K. and Europe, but the direction is consistent across all our regions. In the U.S., our growth in Apparel is fueled by street fashion and our own brands and licensed brand. They represent around 15% of Apparel sales and allow us to respond quickly to new trends and offer companying price points. They also provide structural margin benefits. With products of inevitable elsewhere, we have greater control over our 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 brand sell. Today, around 50% of our apparel assortment and 30% of our footwear assortment is exclusive to JD. This is a real competitive advantage. We combine our deep customer knowledge, our clear positioning and our scale to work with our brand partners 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. This makes us the #1 strategic partner. And for JD, create differentiation, reduced direct price comparison and give us greater influence over the product we sell. As the market matures, I believe this become even more important. This is why we see exclusive product as a core competitive capability. It makes us unique for our customer and for our brand partners.

The second strategic priority is driving better store productivity. There are 3 parts: optimizing the estate, converting stores where others can perform better within the demographic and continuing with fewer, bigger and better store. As Dominic 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 3 years.

In Eastern Europe, we are moving to a franchise model with our partner, sport vision. -- subject to regulatory approvals, stores in existing markets, except Poland will transfer to Sport Vision. And JD will also enter 6 new markets through this capital-light model. In Germany, our restructuring is now complete. We have consolidated to a core estate of 62 stores, providing us with a stronger linear base from which to improve performance. In North America, store conversions are on track. We expect to convert or close all stand-alone Finish Line store by the end of financial year 8, and to complete around 60 city gear conversion this year.

The aim is straightforward, put the strongest fascia in each location and improve the return from the state. In the U.K., we opened JD flagship store in Cardiff and Sheffield and closed 17 stores. This is fewer, bigger and better in practice. Overall, a 0.7% increase in net new space contributed 2.1 percentage points to group sales in the first half, which give us confidence in the strategy. Beyond a [indiscernible] 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 leading omnichannel 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 activewear sector. This capital-light model accelerates our global reach while remaining consistent with our disciplined approach to investment. Today, we have 83 franchise JD and Courir store 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 platform in the U.K. and Ireland, following successful implementation last year in North America, Southeast Asia, Italy and our U.K. outdoor business. The remaining European market are on track for the second half. We are already seeing benefit. 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 represent 20% of our overall sales.

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, [indiscernible] TikTok Shop is already a top 10 account in the U.S. in its category. -- driving meaningful incremental traffic and transaction. A proof point we are looking to build on across our other fascia.

We were also built on the Agentic processing capability now live in the U.S. on 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 fascia 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. 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, in womenswear is one of our biggest growth levers in North America. A stronger apparel proposition drive traffic, basket size, improved margin mix and makes our stores a more distinctive destination. Our apparel penetration in North America is still meaningfully below other regions 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. Automation is ramping up our ALN distribution center across both stores and customer fulfillment. We have now won down our smaller Belgium distribution facility.

In the U.K., fewer, bigger and better continue to be our priority alongside cost productivity. We are starting to see encouraging results from our work to improve our outdoor business, while our Gym business continued 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 omnichannel and loyalty offers are key driver of our plans to grow our market share, sales and profitability.

Overall, and in a more normalized 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 GBP 5 billion of annual sales in less than 10 years. In the U.K., our focus is to maintain our full year '26 margin through productivity and cost discipline.

To conclude, this was a resilient sales performance in the first half despite a difficult market. We stay close to our customer and maintain tight control of cost and capital. We made tangible progress on our strategic priorities, 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 own brand offer is helping us respond as footwear and apparel trends change, while online continued to grow supported by our new technology platform.

Tight cost discipline means that we held our like-for-like OpEx flat year-on-year, and our balance sheet is stronger with net cash improving by nearly GBP 300 million year-on-year after GBP 260 million of cash returned to shareholders. Our full year guidance is unchanged from the Q2 trading statement. Against a challenging backdrop, we are controlling the controllable. We are broadening and strengthening our product proposition with more brands, more trends and more exclusive product.

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 customer better and serve them better. At the same time, we remain disciplined on cost and capital, while continuing to generating strong cash and invest behind the area where we see the greatest returns. That is what gives me confidence and put 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. We will now take your questions.

[Operator Instructions] We'll take our first question from Jonathan Pritchard with Peel Hunt..

We're unable to hear Jonathan, so we'll come back to you shortly. 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 BNP.

Just 2 from me. Firstly, on the replatforming in the U.K. I was just wondering if you can give us a bit more color as to what is 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 for lowering CapEx slightly. I was wondering if you could take us through the moving parts of that.

Thank you for the question. I will take the platforming and Dominic will answer the free cash flow. Re-platform in U.K. In fact, it's not only one re-platforming is that we have re-platform outdoor business, so which is 4 brands, as you know, moving out of our existing platform to Shopify and we did that in January. And from that time, our sales in total outdoor are up 25% year-on-year. So definitely, it's moving to increase the conversion and increasing our sales. And that has been in line with a great -- a very good first half for outdoor business.

So it has proved to be beneficial not only to our online business, but to our client. For U.K. for JD, it's too early to say. It's happened in August. So I think that the first thing we are seeing is some some good improvement in terms of the conversion, especially on the checkout page, but early days. So we'll update you at the end of the year.

I will let Dominic answer your question on cash.

Yes. So our guidance on free cash flow is unchanged from where we may. I think it's fair to say there's an element of conservatism in our position of the May numbers. So notwithstanding a slightly lower profit expectation and guidance. We updated in August, we're still confident of delivering the free cash flow. You pointed to CapEx, yes, slightly down GBP 350 million to GBP 400 million against our guidance of GBP 400 million at the year-end. I think it just reflects our highly disciplined approach to where we spend our money on CapEx.

We continue to invest in the business. as I and Régis spoke about in our presentations, our store CapEx increasingly around 40% is on invested in new state. We continue to invest in new space but in a slightly softer market, our criteria to the margins, there were slightly fewer new stores and we feel comfortable between at this point in time. So that all flows through to 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.

Our next question will come from Richard Taylor with Barclays.

Can you tell us what you're thinking strategically -- just a question really on range. Can you tell us what you're thinking strategically about product? What's your biggest brand partner goes through a weaker innovation period? Are you willing to make more significant action on backing brands that currently have momentum? Versus sort of waiting for a turnaround. And aligned to this, can you talk us through about your exclusives? I think you mentioned 50% on the call. Is this higher or lower with some of the higher-growth brands?

And then a separate question on inventory. I see it's around 2% constant currency. This is sales down 1% or so. I really you've had back-to-school. So interested on what inventory would have been excluding that sort of timing difference. But just more about how you're thinking about inventory going forward, given expectations of lower like-for-like sales growth in the second half from consensus? So I guess inventory is still up, but the outlook look great. This is still reflect oversupply products in the industry.

Okay. I will take the first 2, and Dominic, you will go through the inventory. Range, we are not waiting for for anything. We are -- we have been the first one to implement on in the U.K. We had exclusivity for almost last year. So it has been building the own brand in the U.K. and in Europe. So I think we -- as I always say, we are -- we are selling to our customers what they want to buy. And if they want to buy Nike, we propose Nike, they want to buy or if they want to buy [indiscernible]yes. So merchandising is to be flexible. As you know, we don't sell our space contrary to some of the retailer 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 nothing else than the trends and the appetite for our customer portion products. And we believe that we are well placed and our market share, in fact, is higher with some of the new brands and it is with our #1 brand. So it's replaced that. And our return on space is the same -- is higher with with Nike and it is with other brands showing that we are investing for the other brands. So all of that shows that we are not waiting anything, and they're just acting and moving our range with the trends and with our customer base.

In terms of exclusivity, it's pretty stable. It's around 30% in Footwear, 50% in 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 of the brands. So there is no difference between one plan to another one.

There is brands will have more agile than other brands and that gives us more ability to have exclusivity and some brands are more respectful or having a more tight distribution policies than other brands. So that differs, but our strategy is the same, is how we define products that are the best for our customers and how we do that in partnership with the brands. And we are the #1 partner for most of the brands. So our size of business means that we are the #1, #2 partner for all the brands [indiscernible] in any of our positioning with the brand. And we continue to develop as our sales has been more -- the big difference between footwear and apparel why it is higher exclusive because it's it's a more agile production type and that gives us the ability to react more quickly.

And I think that you have seen our performance in apparel a muted market. That's a bit great performance, which is a tribute 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 change more than the way you produce footwear as quickly as we would like to. But I think the ratio, we are working in the same way with all brands. Inventory?

Yes. Richard. Yes, so our stock was up 2% like-for-like on a year-on-year basis. It's difficult to be precise about exactly what the back-to-school impact of that is. But it's true to say that the North America as a whole back-to-school was delayed, Labor Day was a week later and all that things backward. So we feel comfortable that 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 quickly. We buy tightly -- managed to turn it over well. We've got the biggest period to come, obviously been through back-to-school. We have Black Friday and peak Christmas is the key period where managing our stock through the year will come to show how strong we are in that area. .

The market position, yes, there is a lot of stock out there. It's often the case with a softer period. I don't think we see that materially changing through the first half. We've seen a [indiscernible] environment. That has resulted in price investment we take and we expect that to continue through the second half. So I don't think we see any material change from where we get in the first half through the second half in terms of stock positioning in this industry as a whole. And impact on our margin base.

Our next question will come from Anne Critchlow with Berenberg.

I've got one of the question, please, on the online replatforming. I think U.S. 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 U.K. online sales in the second half?

Yes. So I think you're right, we grew in the U.S. quite strongly online. I think that what we have seen is a faster shakeout, especially the 1 page shakeout to increase our conversion on this part. So I think we are expecting the same in Europe when we will go through the full implementation of the new platform. So that should benefit U.K., but I think that the most important is appetite for the consumer. So we are not expecting that to be revolutionary. I think it's more an evolution and it's more -- it gives us a lot of option long term.

We were not able to click and collect same day in our store because of our whole platform but not a good marketplace. There's plenty of limitations that we have limited to and that should help us to grow our digital business in the coming 18 to 24 months. It will not be big and it's moving double right away. But I think it's more a midterm consuming growth from our online penetration.

Our next question will come from Richard Chamberlain with RBC.

A couple of questions, please. I guess one thing that surprised me reading the statement today was that you said that the statutory gross margin decline was partially offset by higher marketing contribution. So 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 increase? That's the first one.

And then the second one was, was there a positive margin mix effect -- gross margin mix effect in the first half from the outperformance of apparel versus footwear?

Okay. So the mix, as you know, margin is similar. So there is no mix really impact because our margin in both categories are very similar. So I don't know you will -- there is no element of that. And the second -- on the first one, I think when market is tough, 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 demand, they want to create appetite they know that JD customer is the most important to create the trends and to create that.

So I think they have diverted some money that they have for the brand or for the way of promoting the product to us and that is a reflection of that. It's a reflection of our size and our scale. So that's the 2 elements that is driving our increased marketing contribution from the brand. I think that in a tough market, you select the best retailer, and we are the best retailer.

Our next question will come from Jonathan Pritchard with Peel Hunt.

Can you hear me?

We can hear you.

Sorry, guys. Firstly, on recognition in the U.S., could you just give a bit more color on that, perhaps, please? Then following up on Richard's question on the gross margin, [indiscernible] will be in the second half. Can you perhaps give us a bit of guidance as to whether those marketing contributions will continue or what the underlying investment will be -- and then lastly, should we look upon FY '27 as a trough year. What are your early thoughts on FY '28? .

Okay. Remind me the first question. I didn't get.

Brand recognition.

Brand recognition and Dominic [indiscernible] So brand recognition in the U.S., I think that we continue -- I think the main driver of JD brand recognition because that's the one you were talking about is linked to our storage state and to the increase of our store estate. We have -- we have done a fantastic job in New York, and we see that, and it's a very influential and very important market. And we see that our growth and and we see the brand recognition going up.

The rest of U.S., we are doing city by city, key market by key markets because it will be wrong to try to to do all U.S. in one go. So it's linked to the conversion and to opening program, but we are making good progress. And we're looking forward to show you how this -- this is on the field when we go to San Florida in October.

Thank you, Régis. And Jonathan, on your other 2 questions. On gross margin, our strategy gross margin was down 20 basis points. That does reflect to dynamics. As we've been saying, we have made targeted price investments to remain competitive. That's around 50 basis points impact in the half. for new space like-for-like, like-for-like, down about 60 basis points. And that's been offset by the marketing contributions that Régis spoke about those earlier on. In our own internal accounts, -- we look at those as being netted up against the marketing spend we made in OpEx, with 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 to the second half, we're not seeing anything 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 contribution. It's very difficult at this stage to say exactly what those will be as we build those campaign in our brands in the second half. So I think the underlying point is to roll forward the underlying price investment through the rest of the year.

In terms of looking at FY '28, well, we still have the biggest part of our FY '27 to go. So we haven't yet prepared our budgets for FY '28 to support what we see how the second half trends persist and how we see a particular 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 FY '28, no particular bullet there 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 is 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 we offset that, such as the winter clearly be a hard way we need to work on. So I think for us at this point in time, too early to be definitive about FY '28, but continuing to focus on controlling and controllables that we're doing less to ensure that we enter next year and the best position possible.

Our next question will come from Anubhav Malhotra with Panmure Liberum.

Just 2 questions for 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 -- gross margin over there rose 200 basis points. Just maybe a bit of color on 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 from JD Sport, the JD segment margin going down 60 basis points and complementary at least, you're going down 30 basis points in the first half.

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 were these loss-making stores and the sale would be kind of accretive to earnings or not really?

Okay. I will take the franchise one, and Dominic need to take the gross margin. You start.

Yes, I'll start with the gross margin. So Anubhav, good to hear from you. I think what you picked up in the middle of that is our sporting goods businesses in Europe, outdoors to the U.K., Sprintersports an IB and [indiscernible] Greece have had a good first half. And I think what that reflects is a proposition that is putting more value proposition overall, a more commodity proposition that's responding and resonating very well with customers at the moment. And I think that shows the diversity of our business model alongside the sports fashion business. That allows us to sell in a good full price to our customer set. And also our businesses in Greece and outdoors have done a really good job over the last 12 months of including their stock position which has allowed them to put more newness in front customers.

We see it particularly in our outdoor business. And a good old-fashion retail, if you put newest to 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. 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 [indiscernible] products, particularly footwear product cycle that we are seeing versus the relatively smaller sporting goods, the overall price investment underlying at around 50 basis points through the year is only the best place to think about at the group level.

And concerning franchise, I think 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 ourselves. And I think it's linked to a multiple mainly 3 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 our ability to operate in a market on the property and some of the -- call [indiscernible] if you take Eastern Europe, the first element is a small market. It's a complex additional small market with a different language, online in Europe, some are not in Europe, so different currency.

And I think that it's a reflection here which is a reflection that are happening at the group level, which is how we -- to the best of the 2 worlds localized 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 play into a team. When the team is looking after big market, looking after a small market, it's not the priority. And in some of the markets, we are doing less than or much less than what we're doing in one store in Trafford. So that is a reflection around it.

And at the same moment, those markets require love and thunder as much as any market and require adaptation to the local customer. So that's why we believe the best of the two worlds is having a local partner through franchise and at the same moment, leveraging our scale. And I think the great thing is that provision already operated to those markets for a long time. It's a big business in those markets, with a big and a very successful sporting goods business.

And they had an equivalent of JD or a copy of JD, which is called [indiscernible] they recognize that our expertise is worth doing a partnership. And that's -- that's what we're doing. So it's the best of the two worlds at with the best format and the best concept that exists in our industry, which is JD and at the same moment, been able to localize through partners that live and breathe those small countries. And that's the strategy behind that.

In terms of financial, the way it works is that we would have an inflow of cash because we will stop to to have stock for those countries, and that will come gradually because we have placed orders. So the stock will go to our sport vision, and we will sell the stock to sport vision in the coming months. So that will have an impact in the coming 6, 9 months. In terms of working cap, there will be an impact on our on the assets that we have because we also -- we are selling our assets in those countries to support digital. So that will have a positive impact in terms of our cash flow and reduce our our cash, but at 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 will not be very material for the group, but I think it shows the strategy around how we get the best of the two worlds, more localization fewer assets, focusing on key markets and at the same moment, having a global reach to our customers through the best concept that exists in the industry through franchise.

Our next question will come from Grace Smalley with Morgan Stanley.

My first one would just be 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 U.S. 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-like?

And then a follow-up question, please, on the industry imagery and promotional dynamics. So Dominic, I think you mentioned like still excess inventories out there and that continues in terms of the promotional environment into the second half, similarly to H1. I know I appreciate you don't have a match it all, but would you -- what do you think is a reasonable time line for the industry to work through the excess inventories that are out there in the trade?

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 inventory 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, I know you're not guiding specifically, but it seemed from your earlier comments that there's no kind of obvious immediate inflection on the macro side or in terms of the footwear lifestyle product cycle.

Just wondering on product, specifically, as you're looking at like building your order books into next year and the feedback from buyers that have seen kind of the brands product for next year in the showrooms, just what are the puts and takes you're seeing in terms of product category drivers that we should think of going into next year?

Okay. I will do the last 2 and Dominic will do the first. 2028, I think I will not explain more than Dominic, asking that -- on your specific question around how we look around I think that we have not seen on macro. There is no element that say that there is something very different than what we've seen today. So I think we are not expecting something new. We continue to see the trends around running and continue the investment around there, where we continue to in the same momentum around the key brands. So there's nothing that has dramatically changed, and we don't see something dramatically changing. Don't forget it takes time to build franchise and it takes time to get. I think the best example is at Salomon XT6, we start with XT6 4 years ago. I remember I was there and we say we're going to push on on. And it has taken 3 years to get to something which is starting to be meaningful and they're starting to really look at a key franchise worldwide.

So it takes time. And I think you need to not forget. It's not -- if you scale the franchise to quickly, you kill it right away. And whoever you are, if customers need time to be franchise. And I think XT6 is for me the best example. It's a key franchise. It's now part of our and it's working everywhere, but it has taken 4 years to get at what is today a significant choose. And it will not be right for any brand to believe that you can do in 1 year launching a franchise and scaling that will destroy its franchise. And we have seen that every time from the brand to go to scale too quickly, they keep the franchise they want to do.

So this is -- this is about fashion. This is about fashion trends and that need to be nurtured, to be developed at the 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 a good question around promotion. I think it will stop to be promotional when everyone recognize what we said 2 years ago, which is a maturing market. When people will stop to believe that it is a double-digit market, they will start to buy stupidly and too much. And I think that our key competitor has been great in doing the wrong thing, which is to say everything will go [indiscernible] September.

We were proved to be right at that time you were looking at that saying, I think that -- so this is -- as soon as everyone recognizes that this is an industry that is maturing, sneaker is the best shoes in the world, is the most popular shoes in the world, but it is now 60% or 55% of the market. So that means that the double-digit growth that we experimented in the last 10 years would not happen. And I think that -- as soon as everyone recognizes that, they will start 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 it's we are in that place, and you have seen how disciplined we are in our buy. We need the industry to localize the same and to be as disciplined as we are.

And Grace, just to come back on the back-to-school point. I'm not going to give specific numbers on that. It would be serious to receive it had a small impact. I think the bigger point to bear in mind is what we said is we don't really see the underlying market conditions changing from Q2 into Q3 and Q4 around where we are at cycle, where our consumer is and the result in promotional backdrop that we're operating into. I think those are the most key factors.

Our next question will come from David Hughes with Shore Cap.

A couple from me. Firstly, just in terms of capital allocation. Obviously, you've increased the dividend payout this year. In terms of your dividend coverage, you've still got quite a lot of capacity there. Do you have a target coverage or a target yield that you're looking to get to in terms of shareholder returns? And then secondly, in terms of kind of the opportunity in Mexico that you recently announced, Obviously, you're planning the 140 stores as a first blush. How much do you think you kind of potentially could get to in the medium term, do you have an outlook there that you're targeting?

Dominic will do the capital and I will do...

Mexico is actually capital allocation. So -- it's a very good question. And 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 policy. And clearly, beyond investing in the business, we continue to do maintaining leverage headroom for the buyout of Genesis production in 2 to 3 years' time.

Beyond that, shareholder distribution is a key part of our of our overall strategy and capital allocation. We have a rolling GBP 200 million share buyback, and that is -- we're well through that for this particular year. And at the full year, we said that we 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 2-plus percent but below last at the moment. We're not rushing to that, but we around a 20% increase in the full year dividend last year, you can see our intent and we look deliver that over time.

Mexico side. I was waiting. So Mexico, so 140 stores. I think the main opportunities, 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 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 it shows how they didn't need us because they already existing, they already have all the brands and all that stuff, but they believe that the JD format is a much more for full format and much more sustainable format, and they wanted to invest and to pay us royalty in order to get access to our knowledge or [indiscernible].

And I think that's sure you have our strong in proposition and concept and how we we are able to create value. So that's the purpose of the axle feels that we were adding much more value to the proposition than the current propositions that they had. And in terms of number of stores, 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 are footwear and Apparel together, which create a distinctive concept and really average position. So that's all about the project.

Our next question will come from Kate Calvert with Investec.

Just 2 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 U.S. 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 reduced on your comments that you had a good opportunity in the U.S. for womenswear. This is an area that JD has struggled in the U.K. historically. Do you think your sort of consumer perception of 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 U.K. and Europe.

Thank you, Kate. Good question. Mexico, as I said, there is [indiscernible], you right size is there. The access to property is not there. So if you are not a local player, you not access properties. So that has been a easy to do business or not. And it's not always easy to do business in Mexico, currency, security. So that's the 2 [indiscernible]. So there is criteria -- criteria is definitively on the on doing by ourselves. But on the property access and on the way to do business, it definitely a franchise market for us, and that's why. And it's interesting when you talk with American colleague they see Mexico as a difficult -- a very difficult price there.

We're not rushing to the there because they have the opportunity to buy it. And [indiscernible] another franchise and a strong strong model as JD to go there. But -- so it's definitely that -- which is the same as Indonesia, same as Philippines, same as South Africa, the same as Middle East. It's all this countries where we believe that it's much better to have local partners than to operate by ourselves.

In terms of the Womenswear I think we see the 6 in U.K., we have done a very good job to to increase our range in Womenswear. And I think that in U.K. proved to be beneficial, the same as we do in the U.S. It's all about banning the speed to market. And I think we were -- we had a model that was too 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 to every 6 weeks, which is something that I used to do when I was working with Zara.

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 shoe product in U.S. and that is where we are investing and that we are seeing some really very good results in the last 12 months.

Our next question will come from Wendy Lu. [Operator Instructions]

Can you hear me okay?

Yes, Yes.

I just have a quick follow-up question from Greg's question earlier. On footwear growth, I wanted to understand what is required for footwear go back to growth. I guess 2 questions here. One is, how do you feel about newness coming from major brands over the next couple of months and quarters? Two is, I think you mentioned that the industry probably is too complacent on building inventories from footwear, but you seem to be relatively, I think, comfortable with your future inventory.

I was wondering if you can comment on, I guess, how do you feel about your footwear inventory, both from -- in terms of size and value, but also in terms of composition?

Yes, I think that we feel will not say something different. We feel good. But this is if we always have too much of the things that is not good enough and not enough of the good selling. So this is about retail. But we are in a normal position where, yes, I wish to have a little bit more some of the products, and I wish to have a little bit [indiscernible] manage, and this is what we have managed successfully in the last 10 years. And I think that our track record around managing inventory is there.

In terms of the industry for footwear Yes, 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 have too much of something and as it is today, you have discount and customer waiting for the next one to come because it's interesting to see that in Europe and Europe U.K. is mostly driven by lower ATV, so lower average value that is driving the the slightly positive in U.K., in fact, in the gate in Europe.

But this is mostly around the average value which I think is about a reflection of 2 things. There is too much product on so they will position and they don't buy the things and some appetite about something new and exciting because at that moment, paying [indiscernible] man is a the shoes you want. So it's a little bit of 2. In U.S., it's more around highest product and the fact that there are products that everyone wants to buy and are rushing too. So I think it's about creating the heat in the industry, but the main element stop the promotional activity where a customer can wait for next month to get a better deal, and that is I think for me, the first element.

And after that, it will come. We know it's always helpful when there is it created by the market leader, which is not today the case. -- but we see some great things happening. You have seen what we have seen during the summer with [indiscernible] for aDidas. We are seeing that with on coil, we are seeing that through Salomon 66. So there is an element of that. It's true that in the market leader been in a leading position, especially in the U.S. it is part of the recipe to other market that is in a better shape.

Well, there are no further questions on the webinar, so I'll now hand back over to management for closing remarks.

So thank you for your question. So we please to have it in person, but I hope you will enjoy Adidas innovation there. I was talking with Jon and Matthew yesterday. So was very stressed to make sure that they showcase in the best way possible innovation and running. So I hope you enjoy your day in [indiscernible] and looking forward to see you next time in person. Thank you.

Thank you for joining today's call. You may now disconnect.

Good morning, everyone, and thank you for joining us. I'm Régis Schultz, CEO of JD Group, and I'm joined here today by Dominic Platt, our CFO; and also very happy to introduce Jetan Chowk, our Chief Technology Officer, who is on our Q&A panel.

So the agenda for the day is the following. I will start with our key message and highlights for the year. Then I will hand over to Dominic to go through the financials and guidance. And finally, I will take you through the key business update.

For today, I have five key message.

First, everything starts with the consumer. We are offering our customers the latest and the greatest towards fashion product in our vibrant and elevated retail theater. This customer-first approach, combined with cost and capital control delivered a resilient performance for JD against a tough trading environment.

Second, we are pleased, I'm going too quickly, sorry. Second, we are pleased with our momentum in North America with a 3.2% organic growth, which is comparable to our main competitor definition of like-for-like. We have invested further in the JD brand and made significant operational improvement across the region. North America is now our first region in terms of sales and in terms of profit.

Third, our free cash flow is up 36% year-on-year to GBP 462 million, supported by a 3% increase in our operating cash flow, which is the equivalent to EBITDA under old fashion accounting rules. In FY 2026, we reached GBP 12.7 billion turnover. It's compared to GBP 8.6 billion in 2022, achieving double-digit growth per year. We are now a double-digit market share in all our markets, North America, Europe, Australia, New Zealand and U.K. And our profit for FY '26 is GBP 852 million, which is down GBP 100 million versus FY '22, but our operating cash flow is up by GBP 200 million compared to 2022.

This reflects the investment we had to make in staff costs to give our young colleagues an equal remuneration, in governance and in infrastructure, supply chain, cybersecurity system in what was an under-invested business.

Fourth, given our strong cash generation, which we expect will continue, we are announcing today a proposed 20% dividend increase for FY '26 and a rolling GBP 200 million annual share buyback. Finally, our FY '27 guidance is all about controlling the controllable and for the consumer, advancing our five key strategic priority at pace. I will take you through each of these later.

Let me now hand over to Dominic to run through the financial results.

Good morning, everybody. Good to see you all, and thank you, Régis. I'll start with our headline financials. I'll start with our headline financials here on Slide 5.

Unless stated otherwise, all commentary is on a constant currency basis. Total sales were up 11.7%, reflecting a full year of sales from Hibbett and Courir, which were acquired in July and November, respectively, in the prior year. As a reminder, we have restated our prior year gross margin following a reclassification between OpEx and cost of sales of certain costs related to commercial activities and logistics. This is to reflect a more appropriate accounting presentation. And as a result, FY '25 gross margin has moved from 47.8% to 47%.

In FY '26, against a tough market backdrop in all our regions, we maintained our trading discipline. To stay competitive and engage with our customers, throughout the year, we made controlled price investments, particularly in our online offer. The underlying impact of these investments was a reduction of 30 basis points. This was fully offset by marketing contributions, which were higher year-on-year. The corresponding marketing costs that are funded by these contributions are now classified in OpEx for accounting presentation purposes. So overall, statutory gross margin was therefore flat year-on-year.

Operating costs were 14.6% higher, driven by costs related to organic new stores and the annualization of Hibbett and Courir. Excluding these items, like-for-like operating costs were flat year-on-year. More on that later.

Overall, the group's operating profit, including lease interest was GBP 886 million, 4% lower with an operating margin of 7%. Profit before tax and adjusting items was GBP 852 million, 6.4% lower and in line with the guidance provided in our Q4 trading update.

Our adjusted earnings per share were 5.5% lower on a reported basis at 11.71p. For completeness, statutory PBT was GBP 629 million, 12% lower year-on-year. This reflects slightly higher adjusting items year-on-year, which consists mainly of noncash impairment costs arising from actions we are taking to optimize the portfolio. Régis will cover this in more detail later.

We generated free cash flow of GBP 462 million, up GBP 123 million or 36% year-on-year, and this was supported by our cost and capital discipline. Reflecting this strength, the Board has proposed a total ordinary dividend of 1.2p per share, 20% higher year-on-year.

So moving now to our sales bridge year-on-year. The left-hand side rebases FY '25 for an FX headwind of 1.2 percentage points as well as for some small disposals from last year. Like-for-like sales were 2.1% lower. Net new space contributed 4.2 percentage points of sales. This demonstrates the productivity of our new space despite the net closure of 39 stores year-on-year. And as a reminder, in line with most retailers, we include store relocations and upsizes in our new space definition. When you're benchmarking, it's worth noting that some of our peers do not.

Net space growth was supported by the opening of five flagship JD stores, including the Trafford Center in Manchester, where we continue to see very strong results. Overall, organic sales growth was 2.1%. Based on our analysis, leveraging internal resources, external panels and peer data, we believe this is at least in line with the growth of our addressable markets. And completing the bridge, Hibbett and Courir added GBP 1.1 billion of sales for an overall sales growth of 11.7%.

As you can see on this slide, the JD Group is a well-balanced, diversified and global business. 75% of our sales come from North America, Europe and Asia Pacific, and we have significant runway to further grow our market shares in these regions. Our channel mix varies by region with online sales penetration in the U.K. at just over 25%, around 20% in North America and in the high teens in Europe and Asia Pacific. This provides ample opportunity for growth, particularly outside the U.K. As Régis will touch on later, we've made significant progress in building out our fully flexible omnichannel proposition, and we're strengthening our ecosystem to meet customers wherever and however they choose to shop.

Organic store sales grew by 2.2%, reflecting the continued resilience of our full price model and our store opening program. Online sales were up 1% with good growth in North America and Europe, supported by the ongoing evolution of our ranging and technology platforms. In the U.K., online sales were down in a more promotional market, reflecting near-term industry and consumer dynamics.

Turning now to category. Our agile multi-brand, multi-category model provides natural diversification through our footwear, apparel and accessories proposition. In footwear, organic sales were flat year-on-year. Throughout FY '26, we saw a significant shift in the global footwear product cycle, given the transition between newer but smaller franchises and larger end-of-cycle lines. Reflecting the strength of our model, we saw strong growth across brands more in the middle of their product cycles with further support from newer footwear categories that Régis will touch on later.

In apparel, organic sales grew by 5%, driven by our broad and energized proposition as we continue to enhance our assortment across athleisure, performance and streetwear. We believe there's significant scope for growth in this category, particularly in North America, where our apparel mix is low compared to other regions. Despite stronger organic sales growth in apparel, the category sales mix reflects the full year sales from Hibbett and Courir, both of which are more footwear-centric than our other group faces.

Quickly touching on our smaller categories in accessories, a lot of which is actually apparel, such as baseball caps and socks, organic sales were up 11%, driven by strong growth in our sporting goods businesses. And other, which includes outdoor living equipment and JD Gyms memberships, maintained its share of 3% of our sales mix.

Turning now to our geographic regions and starting with North America. While like-for-like sales were 1.8% lower, we saw an improved performance through the year with a return to like-for-like growth in Q4, supported by disciplined execution against its trading plans and strong online sales growth.

Excluding the stand-alone Finish Line business, where we continue to make progress with the ongoing wind down, like-for-like sales were 1.2% up for the year. Operating margin was 250 basis points lower year-on-year with the wind down of Finish Line, a significant but short-term factor.

Finish Line continued to invest in price within its online offer to main competitiveness, and it was a primary source of promotionality amongst our faces. The lower operating margin was also driven by continued investment to strengthen the long-term positioning of JD, which continues to grow brand awareness through the year.

And finally, we had a full year of Hibbett in the numbers, which is a slightly lower margin business than our other key North American faces, particularly following conversion to IFRS. Integration work across Hibbett and our other fascias, including JD, progressed well in the year, supported by procurement, technology and supply chain and logistics efficiencies. We're therefore on track to deliver annualized cost synergies of over $25 million across FY '26 and FY '27.

Turning to Europe. The region delivered like-for-like sales of minus 1.2% ahead of the group, driven by good growth across our sporting goods businesses and a resilient performance at JD and supported by online sales growth. Europe's operating margin was up 20 basis points, benefiting from cost efficiencies across retail, online and supply chain operations, including the ramping up of automation at JD's Heerlen distribution center.

This was partially offset by our controlled price investments, particularly in the online offer, which supported better traffic and conversion. As a reminder, we expect over GBP 20 million of cost benefits across FY '27 and FY '28 as technology and supply chain double running costs unwind.

And finally, in the U.K., we saw weaker sales against a tough consumer backdrop, particularly in the online channel. Organic sales, the more relevant sales KPI given our ongoing transition to fewer, bigger, better stores, were down 2.5% for the year. The U.K. operating margin was 70 basis points lower year-on-year, largely due to operating cost deleverage impacts.

Briefly touching on Asia Pacific, which delivered like-for-like sales growth of 0.4% and organic sales growth of 8.5%. Performance was supported by resilience in footwear and growth in apparel and online. Operating margin was 100 basis points lower as the business invested in infrastructure to support its store expansion program.

So, taking a look now at the profit bridge on Slide 9. Please note that for the purposes of underlying analysis, I have netted off the 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 from the left-hand side, which rebases FY '25 to account for translation FX. The underlying like-for-like gross margin reduction of 30 basis points was the equivalent of GBP 34 million. Our like-for-like sales performance at a constant gross margin contributed GBP 63 million. And note that, that's net of GBP 49 million of attributable variable OpEx savings.

The next bar shows like-for-like OpEx increases of GBP 85 million, primarily driven by inflation in our labor costs, including higher salaries and national insurance rates as well as technology investments. Through our strong focus on cost management, we delivered GBP 45 million of structural OpEx savings through labor efficiencies, productivity initiatives and operational synergies.

And combining this with the GBP 49 million of variable OpEx savings, we were therefore able to fully offset like-for-like OpEx increases. Rolling through from H1, we had a noncash mark-to-market charge of GBP 10 million, and we expect most of this to unwind in FY '27. The contribution from new stores and annualizations was GBP 43 million, and Hibbett and Courir added GBP 66 million.

And finally, we saw a GBP 20 million increase in the net finance expense, excluding lease interest. This was largely due to interest on the debt component of our acquisition financing.

On this next slide, we set out our summary cash flows for the year. Starting with our statutory PBT of GBP 629 million. Depreciation and amortization was GBP 966 million, up GBP 180 million year-on-year, reflecting the annualization of acquisitions and investment in our stores and supply chain. Lease repayments were GBP 508 million.

As a result, the group's operating cash flow was a little over GBP 1.3 billion for the year, up 3.3%. This metric is essentially EBITDA under IAS 17 and represents a very resilient performance given the tough backdrop we are operating in. The change in working capital resulted in a net outflow of GBP 248 million. This was due to an increase in inventory of GBP 55 million to support new stores and an outflow of GBP 193 million in net payables, reflecting the timing of payments and lease incentive receipts, which are essentially CapEx contributions from landlords.

Gross capital expenditure in the year was GBP 401 million, down GBP 114 million on the prior year, largely reflecting the completion of our supply chain investment phase, which saw associated CapEx 60% lower in FY '26. Tax, interest and other cash payments were GBP 198 million and includes about GBP 50 million of timing and phasing benefits. Taking all that into account, free cash flow was GBP 462 million, an improvement of GBP 123 million or 36% on last year and represents a 35% conversion of EBITDA.

After dividends and share buybacks of a combined GBP 253 million, we saw an increase in net cash of GBP 259 million year-on-year, leading to a closing net cash position on the balance sheet of GBP 311 million.

Turning to Slide 11, and we've done what we said we'd do. We managed our inventory and cash with focus and discipline, and we have maintained a strong balance sheet. Closing net inventory was flat year-on-year and 3% higher at constant FX rates, broadly in line with organic sales growth. This was a result of strong and disciplined management action in H2, and we've exited the year with a much cleaner book of inventory.

We also continue to take a disciplined approach to CapEx with a strong focus on returns. Gross CapEx for the year was GBP 401 million, and that's equivalent to 3.2% of sales, significantly lower compared with the 4.5% of sales in the prior year. Our average return on store investment remains in line with our 3-year payback hurdle.

Finally, we are maintaining a strong liquidity position with significant headroom, including IFRS 16 lease liabilities, our net debt was just over GBP 2.8 billion. This represents net leverage of 1.4x. And taking into account the Genesis buyout option in FY '30 and FY '31, our pro forma net leverage of 1.9x remains within investment-grade levels.

For completeness, last year, we completed a comprehensive debt refinancing and including undrawn RCFs, our total available liquidity at year-end was around GBP 1.8 billion.

So now I'll move on to our Q1 trading update and our outlook and guidance for the coming year. As a reminder, based on typical sales weightings, Q1 is our smallest quarter in the financial year. And as such, the timing of things such as key product launches can have a disproportionate impact. We maintained our commercial discipline in what continued to be a tough market backdrop. We delivered well around important customer and product moments, including EID, Easter, the U.S. tax refund season and key product launches, underscoring our ability to capture spend when it matters most.

Organic sales were flat year-on-year, supported by net new space growth of 2.3%, while like-for-like sales declined by 2.3%. Weather affected performance at the start of the quarter with wet conditions in Southern Europe and the U.K. and a severe cold snap in the U.S. Trading strengthened through March with a solid performance over ED, supported by our successful delivery of new product launches.

Trading in April was volatile, particularly in Europe and the U.K., with a solid performance over Easter, but lower footfall throughout the remainder of the month, partly offset by stronger in-store conversion and online sales. Our gross margin for Q1 is in line with our expectations and the qualitative guidance for FY '27, which I'll turn to in a moment.

So let me now turn to our market outlook.

Consistent with the commentary in our Q4 trading update, we expect market growth to be muted in FY '27, shaped by a weaker spending outlook for our core consumer demographic and ongoing product cycle evolution at some of our brand partners, particularly in footwear.

Since January, we've obviously seen rapid evolution in the geopolitical and macroeconomic environment. And while JD has no direct exposure to the Middle East, we continue to monitor the situation closely, including potential second-order impacts on pricing and consumer demand.

On this slide, we've set out the conditions under which we could see a weaker or indeed, on the more optimistic side, a stronger market growth outlook this year. We've also outlined where we believe annual market growth for FY '27 is currently tracking in each of our regions.

Consistent with the last 18 months, we expect the U.S. customer and market to continue to be more resilient than in the U.K. and Europe, where we currently expect consumer sentiment to remain subdued. This view is subject to change as the year unfolds, and we'll provide a further update at our H1 results in September.

So as much as that last slide was about the uncontrollables, this one is all about the controllables, and that's what we're focused on. As you saw earlier, we were able to fully offset like-for-like cost increases in FY '26. We are focused on driving structural efficiencies across the business.

So, by way of some examples, in procurement, we reduced our delivery carrier contract costs by GBP 11 million across the U.K. and Europe. And our tech contract renegotiations unlocked $6 million of savings per annum in North America alone. We also realized significant cash savings on lease renewals in the year, which appear in the P&L as lower depreciation under IFRS 16 accounting.

And talking of accounting, I'm pleased, perhaps not our auditors, to see a significant reduction in the audit fee, reflecting the progress we have made in the last couple of years in improving capability across our systems and functions in finance. Critically, there's also much more we can go after in FY '27.

Last month, we began to roll out our new finance and HR systems in North America. As we consolidate platforms, we unlock the potential for shared service capabilities, enabling further efficiencies. We will also continue to leverage our new scheduling tools to optimize store staff levels based on customer activity and better drive productivity in our stores.

As we make further progress in modernizing our distribution centers, including through automation, we expect to realize further scale benefits and overhead efficiencies, driving lower unit costs. And as a final example, we expect the continued rollout of self-checkout and RFID technology in stores to deliver meaningful customer and staff productivity benefits.

While these are only a few examples, as we've demonstrated in FY '26, we are aiming to significantly offset inflationary like-for-like OpEx increases in FY '27 through these and other efficiency and productivity initiatives.

So, bringing this all together and moving to our guidance for the year. Firstly, we continue to anticipate market growth to be muted in the near term. Within our sales performance, we expect net new space growth to contribute 2% to 3%. As in FY '26, we will continue to implement controlled price investments to stay aligned with near-term customer and market dynamics. We expect these to be weighted more towards the first half of the year.

And given the rapid evolution in the geopolitical and macroeconomic environment over the last couple of months, we believe it's prudent to guide to a wider profit range than we were previously planning internally. We'll continue to closely monitor the situation in the Middle East and its potential impact on the consumer and our business if the crisis is prolonged.

So overall, based on what we know today, we anticipate profit before tax and adjusting items to be within the range of GBP 750 million to GBP 850 million. And reflecting our strong cash-generative model, we expect free cash flow in the range of GBP 460 million to GBP 520 million for the year, supported by disciplined CapEx and strong working capital management.

Finally, Slide 17. And in conjunction with our new 3-year cash flow target announced today, we've also updated our capital allocation framework. With our major M&A and investment cycle complete, this update reflects the next phase of JD's journey and reinforces the balance between investment in growth alongside delivering strong cash flow and cash returns to shareholders.

First, we will prioritize organic growth opportunities with attractive returns and keep an open mind on inorganic bolt-on opportunities that accelerate our strategy. We expect gross CapEx to settle at around 3% to 3.5% of sales over the medium term.

Second, we will maintain appropriate leverage headroom to meet future obligations, including the Genesis buyout option in FY '30 and FY '31. And in line with our confidence in our medium-term trajectory, we're committed to delivering attractive cash returns to shareholders. Building on the proposed 20% increase in our FY '26 ordinary dividend, we will deliver progressive sustainable dividend growth with the clear intention of reaching a more attractive yield over time.

And this will be supplemented by the return of surplus capital via our rolling share buyback program of GBP 200 million a year. This clear and simple framework is underpinned by the strength of our balance sheet and our cash generation. So, with my review concluded, let me hand back over to Régis for the business update. Thank you.

[Music]

Great. Thank you. Thank you very much for putting less loud music. So, this time, it was a little bit better. So, thank you, Dominic. Let's move now to the business update.

So, for the year ahead, we are focusing on 5 key strategic initiatives.

First, our product range to offer the best and most relevant product to our customer.

Second, our store productivity to offer the best service to our customer at the right cost.

Third, our new e-commerce platform to offer the best online and omnichannel experience to our customer.

Fourth, our AI adoption to drive growth and improve our operational effectiveness.

Last but not least, our loyalty program to offer more personalization to our customer.

I will now take you through each of these initiatives in detail. But before doing so, let's talk about the market and our customer trends.

First trend, more young people are adopting an active lifestyle with health and fitness as a priority. I was amazed to see so many young people when I joined a running club and the atmosphere. It is much more like a nightclub than a running club. We see the same trends in our GYMS business, more people, more and more young people looking not only for weight lifting, but for community social interaction.

It's the same for HYROX, the same for Padel. People are prioritizing exercise, which is supporting our industry. Second, there is a clear trend for comfort in everyday wear with more consumer planning to wear comfortable clothes and shoes, supporting the long-term growth of our industry. At the same time, more than 80% of consumers wear sneaker every day. It means that the market is now maturing and is in a new phase, no more double-digit growth driven by first-time adoption, but continued growth driven by newness and repeat buy.

And we see customers embracing and merging different trends, wearing athletic apparel for casual occasion or pairing athletic footwear with nonathletic apparel. Like you have seen, our JD model, Dominic, wearing our product.

Same, I was at the graduation of my daughter and most of the boy were wearing suits with sneakers. We believe these are structural factors that will continue to create demand in a maturing market. The key for JD is being agile to identify trends and to partner with the brand to provide newness to the consumer to drive the market growth.

Talking about agility and trends. Let's turn to a very familiar slide, which demonstrates the power of our sports fashion model and our agility in navigating trends. Looking at footwear, the way we build our range is by category. We take running, performance and retro, basketball, football with the terrace, tennis with Classics, skates and other.

You can see the movement between the category. For example, running has grown significantly over the past two years and moved back above the 50% mark where it was in 2020, supported by the development of performance running. Thanks to our agility, to our flexible merchandising to our buying excellence, we are navigating, anticipating the product cycle, the change of trend and the evolution of brand heat. This is critical in the context of the evolving brand and product cycle.

Turning to apparel. You can see how we have moved our offer towards performance apparel and street fashion. It shows again our agility to capture and create growth by extending our reach with performance, where we have delivered more than 5x growth over the last five years.

Same for the street fashion that show our ability to extend to new category to respond to customer trends, including through the development of our own brand. Our apparel strategy is key as it creates a competitive advantage in every market we operate, and it brings to life our unique lifestyle proposition.

Coming to our key five priorities.

The first one is to diversify our proposition to deliver the latest and greatest product for our customer. The JD customer, the young customer, the 16, 24 years old customer, they are in sports, music, fashion, culture through the eyes and ears of our industry-leading buyers and merchandiser and thousands of young store colleagues across the globe, we know our customer incredibly well.

This, combined with our strong brand relationship, allow us to feed in and exchange insights to create the best possible assortment and bring it to life in the theater of our store. We also work with our brand partner to create our powerful exclusive product set, which we supplement with our own brand. Those own brands allow us to bring new products to market faster at attractive price points.

Our exclusive and own brand product make us 50% of our apparel sales and 30% of our footwear sales. We are leveraging those key strengths to diversify into more trends; more style and more category. Here are some examples. So, if you take fashion, you will see here brands like Timberland, Birkenstock, UGG, Havaianas. For all those brands, we are the #1 wholesaler account for them and trends like denim, knitwear and quarter zip.

If you take performance, this is where we have Nike Vomero, Adidas Evo, HOKA, ON, ASICS, and brands we help bring to market like Montirex was nothing created by two guys in Liverpool and now been in all our store and AYBL, the same for women. If you take Street, this is where we have Air Max 95, you may have seen the Li Tao campaign, Adidas Superstar, New Balance 9060, brands like Hoodrich, Von Dutch, which are exclusive to us and our own brands, Supply & Demand and Unlike Humans.

And if you take outdoor with North Face, Arc'teryx, we are the only mass market retailer having Arc'teryx, Salomon, Rab and Colombia. And the exclusive, all those products are exclusive to us. We are all, we develop exclusive products, delivering more style, more technical feature, more colorway. And we are open to business. So, if you like any of this product, I recommend you to go to one of our stores today. They are open, and the JD team is today modeling some of them today for you.

So, to summarize, we are bringing more brands, more style and more trends in performance, athletic, leisure and streetwear. There is no limit to what we can offer to our customer. We are widening our product range to ensure we are the #1 choice for them. To give a concrete example, our team identified nine months ago, the boots being a trend for your young customer. We have worked with Timberland to rejuvenate the yellow boots and create exclusive product.

Now we are working to bring back from Nike archive a boot. We have tested trends in size and foot patrol. We sold out very quickly, and we are now working for JD to produce a product for the second half of the year. This is the way we create and scale new products for the market. Another focus is to elevate women range across footwear and apparel to bring more appeals for the female customer where JD has a low market share. To do this, we are leveraging core insight.

We are increasing our apparel penetration in North America and Europe, where we see a significant opportunity from the current level. And we are working with our brand partner to enhance our product storytelling to better engage with our customer. We did recently through the campaign We Run This City, focus on performance running. And you know our customer is the epic runner, not the sweaty runner.

So today, we are accessing all product category of our major brand partner, performance, lifestyle, we access all. And it is for us to create this offer to deliver the best for our customer.

Second key strategic initiative is driving store productivity and optimization of our store estate. Our net store movement last year was a reduction of 39 stores, demonstrating our fewer, bigger and better store strategy.

First, optimizing. In North America, we will leverage group best practice to optimize EBIT store footprint and profitability. As part of this, we will close around 170 underperforming EBIT store over the next three years. In Europe, we are focusing on our key markets. We will, therefore, restructure our operation in Eastern Europe and in Germany.

And in the U.K., we are streamlining our outdoor business with less fascia and a better online business following the successful implementation of Shopify. All these actions will ensure our investments are concentrate where we can scale when we have scale, productivity and return are strongest.

Second, converting. This year, we are converting City Gear store to DTLR and Shoe Palace, following last year very successful trials and accelerating the conversion of our stand-alone Finish Line store to JD. Both conversion program have so far delivered a strong uplift in sales and great return on investment.

Third, fewer, bigger and better store to serve our customer better and to be more productive. In JD U.K., last year, we saw a net reduction of 24 stores, but a 4% increase in overall selling spreads. Let's bring it to life with this short video.

[Presentation]

I'm pleased to say that Trafford, which is a store that you have seen, is today the biggest multi-brand sports fashion store in the world by sales, not by size, but by sales. So, a big well done to the team. The first key strategic priority is completing our global e-commerce re-platforming. This has been my biggest frustration in the last three years. Our e-commerce platform built in-house was not fit for purpose, with major deficiency.

The priority has been to secure by investing in cybersecurity and putting in place the IT general control foundation that didn't exist in the business. Meanwhile, we have invested in cloud-based technology with a best-of-breed strategy and upgrade our legacy system. With now a solid foundation and the right team in place, led by Jetan, we make significant progress.

Last year, we rolled out our new online platform in North America, Southeast Asia and Italy, allowing us to expand ship from store and click and collect capability. We are very pleased with the results. We have seen a double-digit percentage increase in online sales. Building on this momentum, this year, we will continue to roll out our new online platform. We have done Ireland last week. We will do U.K. in the coming months and in Europe to complete our re-platforming projects.

Thanks to the composable architecture of the new technology, we are now able to build and release new technology products and feature much faster, enabling us to move forward with marketplace, which we don't have, loyalty, which we didn't been able, the consumer was not able to get redeem points on our loyalty scheme, AI and payment offering.

Fourth, we are accelerating AI adoption with a dual focus on driving growth and improving our operational effectiveness with a test and learn mentality and a decentralized and organic approach. We believe there is a huge opportunity to drive growth through better merchandising decisions, the right product at the right place, more personalization and helping our customers find the right product, for example, through Agentic LLMs, chatbot shopping, assistant or sizing prompts on our website.

At the same time, we are improving our operations through better inventory management, scale marketing content. We can duplicate our marketing content in an infinite way, improve customer care and central efficiency. While still in the infancy stage, we have seen some strong early results. Let me give you a couple of case studies to demonstrate our focus.

First, JD has completed a three-month trial of the AI chatbot shopping assistant, Ask JD, in the U.K. The chatbot tailors our customer shopping experience and helps them find the product they want faster. Customers are able to ask the assistant for suggestion on latest trends, details regarding specific products and creating head-to-toe looks. Early results have been promising with over 300,000, sorry, customer interaction and conversion increased by up to 5x. We will continue to test and learn and iterate with new feature. Ask JD will also be launched in the U.S. soon.

Under the operational effectiveness pillar, JD has implemented an AI-driven customer care chat and voice tool, enabling the faster 24/7 support for JD customer. All customer service call now start their journey with the voice AI with 40% handled entirely by the agent. This is allowing our customer service colleagues to focus on more complex issue while reducing the cost per service by around 30%.

As you know, from our announcement earlier this year, we are a first mover on Agentic commerce, which is highly relevant for the JD customer. As you watch a following demonstration, you will notice the customer experience is not fully end-to-end, and that's deliberate. What this demo highlights is the earlier part, what this demo should highlight is the earlier part of the customer journey, discoverability. Now it's highlighted.

Despite the prong being about a product, not a retailer, JD has consistently mentioned it, both in the narrative response and in the product recommendation generated by ChatGPT. Let me be clear on a few points.

First, not everything you've seen is unique to JD. The in-browser processing experience you see here is an OpenAI capability that can be enabled across many websites today. However, our ranking, our visibility and the frequency with which JD appears over competitor is very much a direct outcome of the advancement we have made in generating engine optimization over recent months.

Second, the more optimized brand experience you see, the demo particularly across the first group of brands are a direct result of the re-platforming work we have prioritized over the last year. We have now the foundation and the foundation will now pay off.

This is just the beginning. Our partnership with Commercetools will enable instant checkout, which we expect to go live soon in the U.S. Taken together, this is how we move from discovery to consideration to conversion, not just keeping pace with our customers shop, but shaping how they will shop in the future.

Our fifth and final strategic initiative is taking loyalty and data-driven personalization to the next level. In the year, we continue to scale our established global loyalty program, JD STATUS. The program now has almost 10 million active members globally, who generate between 33% to 40% of sales across our region. In the U.K., the Retail Royalty Index ranked JD STATUS within the top 10 of loyalty program in all retail sector.

One of the key distinctive feature of our proposition is JD Cash, which customers earn on each of the purchase. We see very strong return on this with over GBP 7 spend at JD for every GBP 1 of JD Cash. This year, we will focus on leveraging the data lake, it provides us with personalization through targeted offer, a personalized access to new product release, gamification and competition. This drive a virtuous circle. The more we personalize, the more engaged our customer, the more data we have, the more we can personalize and so on.

The output of our strategy initiative is to drive a better customer proposition, so better sales, a better productivity of our space and people and so better profitability. In North America, we will continue to focus on growing brand awareness of our JD Fashion through store opening and conversion, backed by a targeted marketing. We are continuing to increase our apparel penetration.

Meanwhile, we are leveraging the EBIT acquisition to reduce our support function costs. Altogether, we see a clear opportunity for North America margin to move higher in the medium term. In Europe, as you saw earlier, we have refined our market focus. We are taking appropriate action on the store footprint. As we scale automation, our L&DC will drive lower cost per unit and unlock savings on duties as we continue to move away from replenishment via the U.K. Building on the success we have seen elsewhere, we will roll out our new online platform across Europe this year. With this support from this action and natural operating leverage, there is a significant opportunity for the European margin to move higher over the medium term.

Finally, in the U.K., our focus is to be more productive with our space and to optimize our central overheads. We will also implement our new online platform later this year to regain online market share. And we are focused on deepening our customer relationship through loyalty and personalization. Over the medium term, we expect the U.K. operating margin to remain stable at the current level. This brings me to our group medium-term financial priorities.

Put simply, we intend to grow sales ahead of our market, driven by organic sales growth with a contribution from net new space of 2% to 3% points. Deliver operating margin progression driven by Europe and North America, as I outlined. This will be supported by our cost efficiency program as well as cost leverage. And finally, generate strong cash flow and deliver attractive shareholder return. Within this, our gross CapEx will stabilize around 3% to 3.5% of our total sales per annum with disciplined working capital management, which will support our new cumulative three years free cash flow target of over GBP 1.4 billion on three years.

To conclude, our customer-first approach, combined with tight cost and capital control deliver a resilient performance for JD against what was a tough trading environment. Our economic model is generating significant free cash flow, and we expect to deliver attractive shareholder return through increased dividend and share buyback.

To finish, our FY '27 guidance is centered on controlling the controllable. We are focusing on maintaining our cost and cash discipline while building a global customer-focused business with the right infrastructure and governance. Before I hand over for our Q&A session, I'd like to thank all my colleagues for their hard work and dedication. Their commitment and their agility are moving us forward, forever forward.

Thank you. Over to you.

Thank you very much. All right. We'll now move to questions. No loud music, please, to protect my delicate ears. So we're going to go to questions now. We're going to alternate between left and right. State your name and institution. Don, can we go with Richard on the front row, please?

I've got 2 questions to kick us off, if that's all right, one on apparel, one on Finish Line. Apparel, I think last year, the organic sales were up about 5%, but the weighting moved down slightly. And I just wondered if you can talk about how you see that weighting moving going forward by geography. I think at the moment, it's around half. Is that right in the U.K., but I guess probably underpenetrated outside the U.K. That's the first one.

And then Finish Line, I wondered if you can just give a bit more color on how you see that store portfolio evolving over the next sort of 3 years or so. I think you're talking about 80 to 90 conversions in the coming year. But what are the sort of plans for the rest of the estate?

Yes. So apparel, you're right, did well, plus 5%. The weighting is diluted by the acquisition of Courir where there is no apparel. So that's the reason. So, if you take the like-for-like weighting, it's going up. So, it's just a matter of the acquisition of Courir where apparel is a very limited part of that. But we are really happy with the performance in apparel and continue to do well. I think footwear is where it is more challenging.

And just on the geography point, in the U.K., actually more than 50% is apparel. And I think that shows the diversity of our business. In Europe, it varies depending on the country, but broadly around 30%, some higher, some lower, such as Courir, for example. And North America is less than 20%. So I think that's where there's a real opportunity. And as Régis said, Courir clearly has a lower, is more footwear focused. Hibbett is also more footwear focused. So I think that's also taken it back a little bit in the U.S. But with those now in the base, the opportunity to grow the penetration across the board is absolutely there. So on the like-for-like, we continue to increase penetration.

So on Finish Line, as you know, Finish Line, we finished the year with 170 stores. What we are doing is that we continue to convert. So in three years' time, there should be no Finish Line stores. We will keep the Macy's business, which is under the Finish Line banner, but we will have no more Finish Line stores. It's just the time to do the right things in terms of conversion. We don't want to convert with, most of the conversion now is with an extension or a better location in the mall. So, it depends on that.

And the other part is that in the U.S., you have some malls that are really dying, but we do a good business. So that's why the like-for-like is down because those malls are, but for the moment, all those stores are profitable. So we will close them when they start to be a problem, but that's why we are taking our time. But that's why I think we should focus the like-for-like excluding the Finish Line stores, which are, by definition, going down. As a matter of time, there will be no more Finish Line stores. So in two years' time, we should have no more Finish Line standalone stores.

Anne Critchlow here. I've got three questions, please. First, if you could give us an idea of the number of net closures overall for the year? And then second, I'm just wondering if there's some tension between your aim to invest in the stores, but also the free cash flow target. So, are parts of the business pushing you to spend more perhaps? And then thirdly, on marketplace, are you working with a partner there?

Okay. Dominic, you do the first one. I will do the 2 others.

Yes. In terms of, you talk about last year or the year to come?

Year to come.

So in terms of, last year, as you saw, we closed 39 stores overall. It's probably easier just to give a view by geography. In terms of our move in the U.K., we expect to see probably around 20 stores closed in the U.K. in the coming year. But as we said last year, space-wise, we'll probably stay at least the same or increase as we move that.

We will see the beginning of the closure of the stores in North America with Hibbett, 175 stores probably over around 3 years. So if you assume an average spread over a period of time. If we then go to expansions in North America, around 20 new JD stores and probably 70 to 80 Finish Line to JD conversions. So that will give you a flavor of the mix in North America. And then in Europe, probably around even by the time we think about what we're doing around JD plus closures in Germany and Eastern Europe, probably a net negative overall. I won't give you a precise number because sometimes you work through the plans, the timing may be a bit different, but stay broadly flat for the year.

So, concerning your question on free cash flow, no, there is no tension. I think we have increased a lot of investment. And that's the reason why profit is down, net EBITDA is up, because of the investment we have made, especially with IFRS. You get the first part of your investment very penalizing a lot your profit. And I think what I always learned from my finance background is that cash is king. And when you see the level of cash, it means that the business is doing well. And I think these investments we have done are the right investments.

The business was underinvested mostly in terms of infrastructure, but even in stores in the U.K., where we have an older store fleet, we didn't invest. So we are able to deliver this free cash flow without putting any constraint on the openings because today, we want to keep our discipline, which has always been the same and which is a 3-year payback. And today, in a market which is muted, there are not a lot of opportunities to open a lot of stores. So we adapt to that.

So, there is really no constraint in terms of investing in the business. And I would like everyone to really understand these key numbers. If you compare to 2022, our profit is down GBP 100 million. Our EBITDA, old-fashioned, is up GBP 200 million. It shows really the quality of the work and the investments we have made in this business. And I think we should be judged on this one because that shows the underlying strength of the business.

On your question around marketplace, our technology didn't offer us the ability to do that. We are late. The new technology we have implemented, commercetools, will help us to be able to do marketplace. For the moment, we have a partnership with Mirakl around that, but that can be flexible. But definitely, this is my biggest frustration for the last 3 years. Every time I was asking for something, the platform cannot do that. So that's why we had spent a lot of time. We have lost ground.

And I think that in the U.K., we have lost market share online because our platform was not good. In the past, we moved our digital business easily because we were the only ones to access product. Now the access to product, it's less scarce in terms of ability to access product, and the quality of the website makes a big difference. And our website is not good. We need to say it. It will change. In July, we are implementing the new platform, and we will start to reinvest in our proposition online around marketplace, but even our loyalty program.

You cannot redeem your points, your JD Cash, on e-commerce. There's plenty of limitations we have today on omnichannel that will be slowly but surely removed, and we can now really do a much better job and catch up on online business.

Let's move over to the side. Can we go to Kate, please, on the third row.

First question is just on the group gross margin. You made a comment about higher marketing contributions as a percentage of sales, adding, I think, about 0.3 percentage points of sales. Is this due to a more supportive Nike, and how sustainable are those higher marketing contributions? My second question is just on the guidance for FY '27.

You're guiding effectively for another year of profit decline. Can you give some more detail on your expectations by regions in terms of what's up, what's down? And then my final question is just on Finish Line X Macy's. Is that unprofitable? And if so, how much of a drag is from the U.S. or North America, should I say?

I will take the first one and second and Dominic will complement the first one and the second one. I'll start with the last one. The Macy's business is a very profitable business for us. So, it's a very good business. So that's why we will continue. And it's a different customer target, more female, a little bit older customer, and we are targeting a different offer, but that's a great business that we have there.

But it's, so it is my answer is on Finish Line Macy's. So, this business is a very profitable business and a very good business, and it's under the name of Finish Line. You have a Finish Line stand-alone store, which is a different business, which was my first answer. So that's the difference between the two. Gross margin, it reflects more support from all brands. So, it's not Nike related. It's all brands. I think that in a world where you need to create demand, you need to connect with the consumer, brands are investing more and they are investing with us because they see and this is really interesting.

You have seen the success of the Molly-Mae partnership with Adidas. Is the brand understand now more and more that the go-to-market strategy should be more exclusive, more with a key partner, and we are getting more of that where we launch product together, we get marketing support to do that together. So it's not a relation to Nike. It's a relation with all the brands. Dominic?

And just on that point, it's neutral to the bottom line because effectively, it's compensating us for costs that we spend. So, what you're seeing here is just the disaggregation and grossing up between OpEx and gross margin. In the past, we'll have had this. It's just that it's the way it's worked through in the year, and it will vary a little bit from year-to-year. So, I think the thing to focus on gross margin is a 30 basis points price investment that we've made as being the real underlying trend of what's happening with gross margin.

In terms of the profit guidance for the year, the overall group profit margin will go down, obviously, as you say, because we're expecting to see profit go down during the year. When you look at where the market is, as we explained on the slide, we expect North America to be more resilient. And therefore, I would expect less pressure in North America, particularly if we start to see some of the benefits of the synergies coming through. We've made good progress on those, and there's more to go to. I think we'll see more pressure in the short term in the U.K. just because of the market pressures that we're seeing there.

And in Europe, we'll have pressure because the market is challenging, as we said in the slide, but the actions we're taking around Heerlen, around the store portfolio, around e-commerce platforms going in and leverage should start to help offset that a little bit. So that will give you a little bit of the dynamics of what we're seeing in the various key markets.

We'll move to the next question. Nothing on this side. Clive, please on the third row.

Clive Black from Shore Capital, who feels very old wearing a tie, I have to say. And my mental health has been stressed as a Coventry City support seeing Aston Villa in your video. Two questions. First of all, Reg, you've talked about youth unemployment in the past, I've been worried about it. How do you see trends across your geographies in that 16 to 24 age group? And then on your guidance, what are you assuming to deliver 750 this year? What are the factors that would take you to the lower end of that range across the group, please?

I will take the first one, and Dominic will take the second one. What we've seen is that you know the numbers better than I do. But I think long term, the good news is that the demography will help because long term, we should see unemployment going down because of the evolution of the population. But short term, especially in U.K., the increase of the NI has been really a key factor in retail investing in technology to replace people. All the 10, 20 hours checkout. Now you go to M&S, you cannot find someone at the tier. It's even the large deal are now self-checkout. So that has been and you have seen that in the last 12, 18 months, a big development of self-checkout, which is our customer was doing 20, 20 hours in that job.

So, we see the unemployment for you going up a lot in U.K., which explains, it's very interesting. We get the data from Circana, which is market data. And if you take the sneaker market, the sneaker market is flat. And the part which is reducing is the 14, 18 years old, which is exactly those customers that will have a 10 hours contract. With this contract, they were able to buy a pair of sneaker that the parents didn't want to pay because it was seen as something and they don't have anymore. And that's why it's putting, I think, pressure, especially in U.K. In Europe, a little bit less because as you know, Europe is much more protective on all those things, but we see a little bit the same and less so in the U.S. So that's where we see.

So that's really, for me, as you mentioned, is a key KPI I'm looking at because that's the one that makes a difference for us is unemployment because the first one that lost their job or don't get the 10, 20 hours contract is a youth customer. And we see that's why the way we have guided, which is to come to your point and to do the introduction to Dominic is that, we see U.K. as the worst because of the employment of the youth. Europe being a little bit the same. And the other thing that happened in Europe and U.K. is that the consumer is half empty, whereas the U.S. customer is the most resilient. They always are full and the unemployment is in a better shape. So that's really what we're seeing.

And on the guidance point, in setting the guidance, we really evolved from what we said at the trading statement in January. We didn't give formal guidance then, but we talked about muted market growth. And over the medium term, we see this as a 2% to 3% market growth sector. Muted is probably more like 0% to 1% growth. We'd expect to slightly outperform that 2% to 3% space growth would then point to negative like-for-like, and that's where the market is at the moment, and I think no surprise in the current environment.

There are other puts and takes in terms of new space and significantly offsetting OpEx inflation, and we do expect to see some pressure on margin continuing at the same level. Going to the bottom end of the GBP 750 million, what would need to be the case? I think probably most likely at the sales line. So, an assumption around where that like-for-like would sit in the period.

But at the bottom end, we're probably in an environment where there's probably a bit more promotion on in the market because people are struggling a bit more and possibly some more inflation. So difficult to be precise, but I think it's just us being pragmatic as we were in November coming to the peak season to say this is an uncertain period. So, let's just give ourselves some more headroom. And I think probably a derisk on like-for-like is the most likely way to get there.

Over to JP and Warwick, please.

Jonathan Pritchard at Peel Hunt. Just on apparel, I think the received wisdom over the years has been that apparel runs a higher margin gross margin than footwear. Is that still the case? And is it hundreds of basis points? Is it tens of basis points? Or are they pretty much the same now? Just to build on Anne's question, the other side of it really, the U.K. real estate market, is there the availability of sites? I mean, obviously, not as big as Trafford commonly, but is there a strong pipeline of space to get to that bigger and better mantra? And then just interested in that, Dominic, what you're saying on the sales bridge about the like-for-like definition. Could you just give us a bit more color on that?

Intake margin on apparel is higher than footwear. Exit margin is the same. So there has never been a big difference. So it varied by season and all that stuff because it depends on, to make it simple, it's the same. So I think that it has been the same for the last 3 years. So there is no big difference between the two. In terms of U.K., we have Trafford, we have Blue Water. There is still some stores that we want to expand and to create this theater. So that is around, I would say, 5 projects per year in the coming 3 years, that type of magnitude. And on the like-for-like? Yes.

I pulled that out simply because people benchmark us against others, particularly in our sector. Our like-for-like definition follows the majority of what retailers do, which is that our like-for-like is our core European retail well, most retailers. our like-for-like is our core estate and where we have new stores, where we stand by more than 10%, where we relocate in the market, we treat all of that as new space. And as you saw in the results, 2.1% organic, 4.2% new space, giving you minus 2%, 2.1% like-for-like.

Some of our competitors, our very largest competitor in North America, treat effectively relocation and expansion as like-for-like investment in their existing store estate. If we apply those numbers to our measures, we'd be minus 0.6% like-for-like for last year. So, it's just giving you a comparison that when you look at different businesses, they use different measures and therefore, direct comparison isn't always giving you the answer that you might expect.

And to give you, and that's why we insist on U.K. especially because to give you a concrete example, if you take Trafford, Trafford is driving, is not in our like-for-like. But the impact that we have around the store because we drive so many sales is in our like-for-like. So, in a certain we're opening bigger store is driving a negative like-for-like, whereas if you take one of our competitor, main competitor, it will put everything in the like-for-like. So that's where it's a very different way of measuring.

The same in U.S., some of the conversion is not in the like-for-like. So when we do expansion, which in the case, it will be. But the more practical example is Trafford. Trafford has a very negative impact on our like-for-like, whereas it's a big success.

Just before we go to Warwick, if anyone's got any questions on technology and AI, Jeff I am, Jetan is ready for you. He is hungry.

Warwick Okines from BNP Paribas. Sorry, actually not on tech. I've got two. You said that the apparel mix is a bit less than 20% in North America. Could you specifically say what it is for the JD banner and where it, how much it increased last year, please? And secondly, the most buoyant footwear category, it seems is performance running for you. Is there enough innovation in the pipeline for that to keep that the strongest segment in footwear?

On the first point, it's just above 20% actually for JD, and it's grown by probably about 2 percentage points in the last year. So we're seeing steady growth there, but this takes time to build. So it's not going to be a sudden change.

And don't forget U.S., you have a lot of in the South, it will never be the U.K. one because in U.K., you sell jacket, which is a much higher price point that you don't sell in half of the U.S., you sell only shorts and T-shirts. So there is a price.

And a good example of that is JD Canada is about 30% apparel penetration because of the price point of the jacket area.

On running, I think the biggest growth is not performance. In fact, it's retro running. So it's not performance running play a role, but it's not significant compared to the growth that we are experimenting in retro running. So it's not linked to the performance running so much.

Charles, please.

Charles Allen from Bloomberg Intelligence. I think sort of just looking at the numbers you've given with space growth and negative like-for-likes, one has to assume that your sales densities are down a little bit, and you did talk about deleveraging. I mean, is that right? And do you need to start getting your sales densities up to start getting the margin effect that you're talking about?

Sales density going down a little bit, but because we are closing some small stores, which are with a high sales density, but not very profitable because of the productivity. So, you have the two elements. It's the sales density and the productivity.

The problem of our small store is that you need someone to open, you need someone to close. So, when sales is going down a little bit, you have no leverage, whereas with a larger store, you have leverage because you can invest in technology and all that staff.

So yes, you're right in terms of sales density, but in terms of staff density, it's going up.

Productivity in store, Sales per employee is going up.

That's the balance. And you get larger stores. And when you get larger store, your cost per square meter is lower than you have small stores. So, you get that.

Just double check, are there any questions on the telephone lines at this point? No. Okay. I think we've got a few more on this slide.

Jean Roach from Schroders. Can I have three, sorry. So, one is on trends in shrinkage across the three main regions. Then the vintage effect, I was being told that this was having no effect about a year ago. I do feel that must have ramped up now and if you're able to measure it. And then, yes, I will ask one on technology and AI.

How close are you to having shoppers directly being linked into your websites by the likes of Claude or GPT? Or is that still not happening?

Take the last one, I take the other two.

Shrinkage I mean JD shrinkage as a group is incredibly good, less than 0.1% and that does reflect an average. It's better in some markets than others, but in all markets, less than 1%. And we've seen it steady in U.K., Europe and actually improving in North America, which is, I think, a testament to the methods that we use to protect our stores.

So, in terms of shoppers being linked into the app itself or into our commerce, what you saw today in the demo was essentially a web view. It takes you to our product page in that respect. And then that commerce journey actually maps back into our commerce channel. In terms of customers linking into the app, our Hibbett trade has actually gone live with a Hibbett store within the ChatGPT app. That's a test that we're running at the moment as a first stature within the group. We've been live for a month, early days, and we'll see how that plays out in the coming weeks.

And Vinted, I think that is definitely happening on apparel. On footwear, the penetration is very, very low because unfortunately or fortunately, the young customer when they were sneaker for a significant period of time, the smell stay.

And I'm sure if you have a teenager, you will understand what I'm saying by that. So, it's really very minimum what they do on the sneaker side. On apparel, it's more important. But most of that is to buy new products. So, they just renew the product cycle. So, we are not, our apparel sales are up. So definitely, we don't see an impact. And I think on sneaker, we are protected by the smell.

Thierry Cota from Bank of America. Three questions, please. You haven't mentioned the World Cup. I was wondering whether you could measure the impact be on a net basis, excluding cannibalization, if that's possible and by region, Europe versus the U.S.

Secondly, on Finish Line, it seems that when you give the numbers of like-for-like with the effect of Finish Line conversion without it, the gap has been shrinking. So I was wondering if you could elaborate on the number of stores and how much exactly is left to do? And if it's basically a function of fewer stores being converted or less efficiency in doing so?

And a very small question, U.S. tariffs, you're paying some tariffs for the products which are under your banner into the U.S. So how much you paid last year? And with the tariffs being halved, is that going to be a few million saved starting in the latter part of the year?

Okay. So, World Cup, I think what we measure in World Cup is Replica, which is tiny on the total sales. So there is no, that's a direct impact. There is a positive impact about talking about sport, about the soccer or the football culture in the U.S., which is a more midterm, long term.

But I know you like numbers, but you cannot capture a number linked, the only numbers we can capture is Replica and Replica is what, GBP 30 million business or it's not at the size of the group, it's very marginal.

You have a positive impact about, we were born in Manchester and Liverpool North of U.K. based on the football culture. That's what we have exported across Europe. and that's what we have exported in the U.S. The U.S., it's more a basketball culture. Football culture is less. So, the fact that football culture become more important in the U.S. will have a positive impact because that's a culture that we know very well that we are able to leverage. But that's a midterm. So, there is no direct impact. We don't sell football boots or very marginally in the U.K. So there is no direct impact.

Don't forget, we are a sports fashion retailer. We are not a sports retailer. So, there's no direct impact. Yes, that's GBP 30 million. It's GBP 30 million. So yes, but we do 13 billion. So, if you want to go in micro detail, we can go, but I don't think it's significant.

So Finish line? Finish line, I mean the reason it's representing a smaller proportion of the difference is because it's becoming a smaller state. So, at the beginning of FY '26, we had about 260 Finish Line stores. Last year, we closed 14, transferred 69 to JD. So, we finished this year with 175. We'll probably transfer around 80 to 90 this year.

So we expect to finish around sort of 80, 90 stores at the end of this financial year. And as Régis said earlier on, really, we won't talk about them because they are less than 4% of our 2,500 stores in North America, and we will be opportunistic about when we close them because some of them are still making contribution or close them when it makes economic sense to do so. So the reason is just it's getting a smaller proportion of the total store base in North America.

And on the U.S. tariff, as we said last year, we have no direct impact of the U.S. tariff or very limited. We mentioned last year 8 million. So that's the type of magnitude. And it was mainly around our CapEx because it's a fixture and fitting that we are buying. As you know, we are buying our product from the brand, and the brand is covering the tariff or getting the benefit. So it's more a question for Adidas and Nike and not for us.

Caroline Gulliver from Equity Development. Just to build on Jean's question, could you just talk a little bit more about the latest trends you're seeing by region in sort of the customer journey online for your young customers? Obviously, the 16- to 24-year-olds with regard to social media marketing and then how you're linking kind of TikTok and the app and the ChatGPT and all the rest of it for all these in the room.

Do you want to take that? Okay. Great.

You are the youngest.

I'll cite some of the demonstrations you've seen today hopefully answer that question. So Ask JD is a great example. Really, it's driven an AI experience where the customer can really probe and act and enhance that customer journey through the life cycle of the digital ecosystem. We started off in a very measured test and learn approach. We actually injected that product feature in the product listing page first.

And what we saw was low uptake and driving only 1% conversion on that page onto the next kind of size of the customer journey. When we move that then to the product display page, we saw with the 300,000 sort of customers that Régis mentioned on the sample size, we saw high uptake of 5x conversion into the basket. So, what we're seeing is in the micro moments of the customer journey, we are infusing AI where it makes sense. And we really taking a customer-led approach, very much a measurement-led approach to make sure it makes sense.

This isn't really about injecting AI everywhere. It's about making sure it adds value to the experience and also it converts and it makes economic sense. On TikTok, I think you mentioned early stages of kind of looking at that channel. Obviously, that channel has a different economic model. It has a different need state, but it's also where our customer lives, and we engage highly with the customer on that social media channel. At the moment, we're exploring with partners the opportunity to transact, what that means in terms of the proposition we serve there and the price point and the experience. I think that's the 2 questions. Is there one more? Or does that kind of answer the question?

One more Kate, I think. Dom, if you could pass the mic to her.

I'll come back with another tech question as well because I had a bit of a shopping experience two weeks ago. So, you're due to complete your global e-com update in the U.K. and Europe this year, how quickly will the shopping experience actually change for the consumer? Because obviously, the systems aren't very joined up at the moment. So will you sort of be able to get next day click and collect, for example, are we going to have your loyalty program on the same app as your JD app, et cetera. So, what would the experience for the consumer be overnight sort of thing?

Yes. I think there's multiple strands in that question, so I'll kind of answer piece by piece. I think the first thing is when we talk about the website, yes, it is a new website, but there is a whole raft of change that we're doing underneath that. So, it's a composable architecture. So what do we mean by that?

Just first, the website in U.K. will be changed in July, July, August.

It will change in July in that respect. But it's powered with a new search and merchandising platform. It's powered with a new content platform. It's powered with a new order management system in that respect. In terms of the customer experience, what it does unlock is more of an omnichannel offering.

So, it allows the ability to drive the customer promise of Click & Collect further up the funnel in that respect. So, you can start seeing availability of stock in the product listing pages. You have the options to do quick same-day pickup or Click & Collect, as you mentioned, it will have loyalty injected in it, so you can start to burn and earn online. And there's new sort of product features that we want to deploy as part of that launch.

So, it's more fewer clicks to basket. It's better site speed. It's more scalable in that respect. So, you'll see more features being launched. This is not about replacing one platform from another and driving parity. It's elevating that experience.

And you're right, it's not great today.

On the app, it's similar as well. So, I think you mentioned the app will also be elevated with the new app. It coincides with every market launch that we do. So, we launched Italy and Ireland. We upgrade the app capability with new features. We will see the same play out in the app experience in U.K. in the summer. Okay.

I think that's with our Q&A concluded. I think we can thank you all very much for joining us today. Thanks very much for the JD management team. See you soon.