JOUL.L Regulatory News (JOUL)

23 January 2019

Joules Group plc

("Joules", the "Group")

Interim Results for the 26 weeks ended 25 November 2018

Strength of the Joules brand and flexible 'total retail' model deliver profits ahead of initial expectations

Highlights:

· Group revenue increased by 17.6% to £113.1 million (up 17.5% in constant currency)

- Approximate revenue growth of +14%3 excluding the impact of the successful transition of certain wholesale accounts to a retail concession model in the Period

· Underlying Profit Before Tax increased by 14.7% to £10.7 million

· Active4 customers increased by 20% to 1.4 million

· International revenue increased by 64.2% and now represents 15.8% of Group revenue

· Net cash of £4.3 million, an improvement of £1.3 million on the prior year

· Continued retail sales momentum through the Christmas trading period, with retail sales +11.7% in the seven weeks to 6 January 2019

· The Board reiterates its confidence in achieving full year 2019 Underlying PBT in line with its expectations

Colin Porter, Chief Executive, commented:

"Joules has delivered another strong performance in the first half of year. As previously reported, this outcome is ahead of our initial expectations for the Period and has been achieved despite challenging trading conditions.

The business's success during this first half of the year is testament to the strength of our distinctive brand and the efforts of our fantastic team. We continue to benefit from a well-invested and flexible 'total retail' model in the UK, which enables us to respond and adapt to shifting customer preferences. Internationally, the brand continues to grow very well in both the US and Germany.

During 2019 the brand will celebrate its 30th Birthday, marking three decades of Joules delivering fun, quality clothing for families and friends to make lasting memories together. We have some very exciting celebrations planned throughout the year built around some of the special moments we have shared with our customers since the Joules story began - when Tom started selling practical clothing with a distinctive twist on a stand at a country show in Leicestershire - back in 1989.

We have continued to trade well since the Period end with a good performance through the festive period and positive customer reactions to our new collections. We have an outstanding brand, good momentum and a growing customer base and we look forward to the second half of the financial year with confidence."

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1 Underlying excludes the cost of share based payments. A reconciliation to reported (IFRS) results is included in the Financial Review below.2 Underlying EPS: Underlying Profit Before Tax with tax deducted at a consistent rate divided by the number of shares in issue as at 25 November 2018. 3 Comparative growth is based on adjusting the prior period as if the retail concession model was being operated in that period. The prior period restatement is unaudited and approximate. Comparative growth by segment is included in the Financial Review below.4 A customer registered on our database who has transacted in the last 12 months.

Enquiries:

Joules - 'a premium lifestyle brand with an authentic British heritage'

Established in Britain by Tom Joule three decades ago, Joules is a premium lifestyle brand with an authentic heritage.

The Joules story began in 1989, when Tom Joule started selling clothing on a stand at a country show in Leicestershire. Today, it is a true multi-channel lifestyle brand; its products are available through its own retail stores, online, at rural shows and events and wholesale channels both in the UK and internationally.

Joules carefully designs and sells clothing, footwear and accessories for women, men and children, as well as ever-growing homeware, eyewear and licensed product collections.

The brand's values of quality, Britishness, family, and humour, coupled with its unique use of colour and print set Joules apart. This approach, along with an unwavering attention to detail and drive to surprise and delight its customers with unexpected details, has been central to the brand's success and remains at the heart of everything Joules creates.

During 2019 the brand will celebrate its 30th birthday, marking three decades of Joules delivering fun, quality clothing for families and friends to make lasting memories together. The brand has some very exciting celebrations planned throughout the year, built around some of the special moments shared with its customers since the Joules story began back in 1989.

www.joules.com | www.joulesgroup.com 

Joules Fast Facts

· Joules is an international brand, available in the UK, USA, Germany, France and other European markets

· Joules operates 123* stores in the UK and ROI across a range of location types, has a significant online business and a well-established wholesale business with over 2,000 stockists worldwide, including John Lewis and Nordstrom Joules' talented in-house print design team lovingly hand-draw all the prints and unexpected unique details you see within its collections each season

· Joules is proud of its British heritage and still has strong roots in Market Harborough, the site of its first shop and head office - since day one

· Colin Porter joined as COO in 2010 and became CEO in September 2015, with Tom Joule focusing on the creative side of the business in his capacity as Chief Brand Officer

· Joules received Mark of Excellence for The Best Fashion Retailer at the Retail Week Awards 2018

· Joules recently won Fashion Retail Business of the Year (between £101m and £500m turnover) at the Drapers Awards 2018, for the second year in a row. The Group also won the Drapers Mainstream Brand of the Year in both 2017 and 2016, and Best British Fashion Retailer of the Year in 2015

*As at 25 November 2018, excluding concessions

CHIEF EXECUTIVE'S REPORT

I am delighted to update the Group's stakeholders on a strong first half performance despite the widely-reported challenging trading conditions for the sector. We have continued to expand across both our core UK market, where we continue to grow our customer base, and internationally, where the brand continues to expand at pace in both our key target markets, the US and Germany.

Group Revenue during the 26 weeks to 25 November 2018 (the "Period" or "first half") increased by 17.6% to £113.1 million (H1 FY18: £96.2 million), reflecting strong growth across both our Retail and Wholesale segments. Underlying Profit Before Tax ("PBT") increased by 14.7% to £10.7 million (H1 FY18: £9.3m). This represented a very pleasing outcome given the broader external trading challenges faced by the sector.

We have delivered growth across all product categories with continued momentum in our core womenswear range and the successful extensions of our footwear and accessories categories. This has been complemented by the further development of Joules branded products with licence partnerships, including launches of Joules watches and stationery, the expansion of gifting and increased distribution of the Joules sofa range in partnership with DFS. We continue to focus on delivering product extension opportunities that are right for the brand and our customer, with an exciting pipeline of brand relevant licence arrangements, planned for the second half of this financial year and beyond.

As consumer spending increasingly moves online and as customers have ever more choice as to where to browse and buy brands, our flexible integrated 'total retail' model has enabled us to respond. Our well-developed E-commerce proposition, in combination with our balanced and flexible portfolio of stores in desirable locations and our presence in partner channels, online and in-store, enables us to be agnostic as to where our customers shop. Customers increasingly begin their journey in one channel and end in another, with stores, both Joules-owned and those of our partners, driving brand awareness and new customer acquisition. Similarly increased online traffic continues to drive footfall into stores.

We have continued to invest in our infrastructure to support the Group's future growth plans. Just before the start of the Period, we went live with our new company-wide ERP system, Microsoft Dynamics AX, which we continue to enhance and evolve. During the Period, we made investments to enhance the end-to-end customer experience across our retail channels. Since the Period end, we have started work on our new head office development in Market Harborough. On completion of the new facility, expected in FY21, we will house all Joules head office employees under one roof which we anticipate will enhance creativity, efficiency and further reinforce our strong brand and culture.

FINANCIAL REVIEW

PROFIT BEFORE TAX

Underlying PBT increased by 14.7% to £10.7 million (H1 FY18: £9.3 million). Statutory PBT increased by 12.1% to £9.3 million (H1 FY18: £8.3 million).

UNDERLYING AND STATUTORY RESULTS

Certain items have been excluded from the underlying results reported in the front section of these Interim Results. In the Period and prior period these solely relate to non-cash share based compensation plan expense. These adjustments are intended to provide the reader with a more meaningful year-on-year comparison.

Executive and employee share based compensation plans were established at the time of the IPO, in May 2016. In accordance with IFRS2, the non-cash expense related to awards under the share plans is accounted for within administrative expenses, until the shares are exercised, typically assumed as three years. The first awards under these plans were made in FY17 and the second awards were made in FY18. As the share plan award cycle matures over the first three years, the related expense is anticipated to increase each year. The associated income statement expense of £1.4 million in the Period (H1 FY18: £1.0 million) is treated as 'non-underlying' as it is non-comparable across periods whilst the share plan award cycle is in the initial three years, prior to reaching maturity.

A reconciliation between underlying and reported (IFRS) results is provided below.

REVENUE

Group revenue increased by 17.6% to £113.1 million from £96.2 million (up 17.5% on a constant currency basis).

Retail and Wholesale revenue growth was impacted by the transition in the Period of some UK wholesale accounts to the retail concession model, which provides greater future trading flexibility and consistency of customer proposition. Approximate revenue growth excluding the impact of this transition is disclosed below for comparative purposes:

5 Comparative growth is based on adjusting the prior period as if the retail concession model was being operated in that period. The prior period restatement is unaudited and approximate.

Retail

Retail revenue increased by 21.2% to £79.9 million, which represents growth of approximately 10% when adjusting for the transition of wholesale accounts to retail concession model in the Period. This growth was driven by our continued focus on delivering an enjoyable and seamless cross-channel experience to customers, irrespective of how, when and where they want to shop the Joules brand.

E-commerce

E-commerce performed particularly well in the first half and now represents 46.5% of all retail sales (H1 FY18: 35.8%). The strong performance of our owned E-commerce channels was attributable to our growing active customer base, which helped drive increased traffic. In addition, ongoing investment in both the customer experience and infrastructure of our digital platforms improved conversion trends. This growth was complemented by good performance on our partner retailer websites.

Stores

We opened five new stores in the first half. At the end of the Period, the Group operated 123 owned stores (H1 FY18: 113), in addition to 34 concessions (H1 FY18: 5) and three franchises (H1 FY18: 3). Our stores are in desirable locations, operate on relatively short lease terms and continue to play an important role in the expansion of the Joules brand in the UK. Our stores portfolio plays an increasingly important role in a customer's digital purchase journey, with increased utilisation of our click & collect and in-store returns services.

Wholesale

Wholesale revenue increased by 8.0% to £32.5 million, approximately 26% growth adjusting for the transition of wholesale accounts to retail concession model in the Period. This very strong growth reflects continued momentum in the Group's target international markets, North America and Germany, and good UK performance. Wholesale revenue in North America grew by over 100% in the Period.  

Licensing

Revenue from licensing activity increased to £0.8 million (H1 FY18: £0.2 million). This increase is the result of improved performance within existing licensing partnerships, as we increased distribution and grew the product range, and the launch of new brand licence partnerships in new product categories including Joules watches.

International revenue

Total international revenue increased by 64.2% and now represents 15.8% of total Group revenue (H1 FY18: 11.3%). This very strong performance demonstrates the appeal of the Joules brand in our target international markets. International wholesale grew by 78% in constant currency, with growth in existing accounts and the addition of several new accounts. International E-commerce in the US and Germany continued to perform very well, with strong and encouraging growth albeit from a relatively low base.

GROSS MARGIN

Gross margin at 54.8% was 80 basis points below the comparable period in the prior year (FY18 H1: 55.6%).

Retail gross margin was impacted by the increasing mix of E-commerce sales, which have a lower gross margin than store sales, but deliver a higher operating margin, and by increased levels of new customer acquisition activity in the Period, which resulted in a 21% increase in new customers year on year. We also saw an increased customer participation in our core annual events.

Wholesale gross margin was in line with the comparable prior year period, with an improved UK and Europe margin offset by accelerated sales growth in the US where margins are lower.

ADMINISTRATIVE EXPENSES

Underlying administrative expenses increased by 15.9% from £44.0 million to £51.1 million, representing 45.1% of revenue (H1 FY18: 45.8%). Excluding the impact of the conversion of wholesale accounts to the retail concession model and the resulting increase in sales commissions (linked to the retail sales made in concessions), underlying administrative expenses increased by less than 10%, reflecting leverage from previous investments in central capabilities and infrastructure.

Depreciation and amortisation decreased by £0.2 million to £3.7 million (H1 FY18: £3.9 million), the decrease being due to several older stores now being fully depreciated as well as a lower level of capital expenditure compared to the prior year, most notably from a lower number of store openings.

NET FINANCE COSTS

Underlying net finance costs of £0.2 million (H1 FY18: £0.1 million) related to interest and facility charges on the Group's revolving credit facility and term loan with Barclays Bank Plc. 

TAXATION

The tax charge for the period was £2.0 million (H1 FY18: £1.9 million). The effective tax rate for the Period was 21.9% (H1 FY18: 22.6%), which was higher than the applicable UK corporation tax rate due to the impact of non-deductible expenses.

EARNINGS PER SHARE

Basic earnings per share for the Period were 8.3 pence (H1 FY18: 7.3 pence).

Underlying pro forma basic earnings per share for the Period were 9.7 pence (H1 FY18: 8.5 pence). Underlying pro forma basic EPS is calculated using Underlying PBT less tax at the effective statutory rate.

DIVIDEND

The Board is pleased to declare an interim dividend of 0.75 pence (FY18: 0.70 pence). The interim dividend will be paid on 9 April 2019 to those shareholders on the register at the close of business on 8 March 2019.

CASH FLOW AND CAPITAL EXPENDITURE

Free cash flow, excluding expenditure on our new head office development, was £6.2 million in the period (H1 FY18: £2.1 million). This improvement reflects a lower level of core capital expenditure, primarily due to fewer store openings, as well as the expenditure on the now live company-wide ERP implementation in the comparable period last year.

Core capital expenditure in the first half was £5.0 million (H1 FY18: £8.6 million). Major areas of capital expenditure included new stores and enhancements to online and in-store customer experience capabilities. The development of our new head office incurred spend of £0.7 million in the Period (H1 FY18: £4.4 million). Having obtained planning permission in November 2018, work has now commenced and we anticipate further expenditure of around £15 million on the development over the next 24 months. 

NET CASH AND BORROWINGS

Net cash at the end of the Period was £4.3 million (H1 FY18: £3.0 million), an improvement of £1.3 million.

Gross cash was £15.7 million at the end of the first half (H1 FY18: £12.8 million) and Group borrowings were £11.4 million at the end of the first half (H1 FY18: £9.8 million).

The Group has a £25 million revolving credit facility ('RCF') provided by Barclays Bank Plc to fund seasonal working capital requirements. This facility has been extended since the Period end to July 2022.

The development of the new head office is being funded, in part, through a new £9.5 million term loan facility, arranged with Barclays Bank Plc ('Term Loan') after the period end. This new term loan incorporates the existing £3.5 million term loan that was used to part fund the initial acquisition of the head office site. The Term Loan will be utilised over the next 18 months and is repayable by December 2023.

At the first half Group borrowings comprised the RCF £8.0 million, the Term Loan £3.2 million and legacy asset loans of £0.2 million.

STRATEGIC REVIEW

We have a clear strategy for the long-term development of Joules as a premium lifestyle brand, both in the UK and internationally. This strategy is built on the four pillars described below and is underpinned by our distinctive brand, unique products and unwavering customer focus. Our strategy is delivered by our strong, experienced senior management team and talented teams across the globe, who are key to the brand's continued success and supported by well-invested systems and infrastructure.

During the Period, we continued to deliver excellent further progress against each strategic growth pillar.

The brand's continued success was recognised again at the 2018 Drapers Awards where Joules won Fashion Retail Business of the Year (£101m-£500m revenue) for the second year running, against strong competition from other leading lifestyle brands.

1. INCREASING CUSTOMER VALUE

Our goal is to increase our base of active customers and to develop the engagement of these customers with Joules as a brand that reflects their lifestyles. By doing this successfully, our customers interact with us more frequently and increase their total spend across our product categories. They also act as the best advocates for our brand, helping to further grow our active customer base.

During the Period, awareness of the Joules brand continued to grow and our active customer base increased by 20% against the prior year to 1.4 million6, driven by new customer acquisition from our stores and increasingly effective digital marketing activity. Engagement from our customers across social media channels continues to increase, reflecting the growing importance of these channels for strengthening the brand-customer connection. Our multi-channel customers (those that shop across stores and online channels) continue to be our most valuable and continue to grow as a proportion of our overall active customer base.

During 2019, Joules will celebrate its 30th Birthday. This milestone celebration provides a number of opportunities to further engage with our customers, across social and digital channels as well as in stores throughout the year. To reflect our heritage and brand journey so far, we have a range of exciting events and campaigns planned - around the theme of 'making memories' - that will celebrate our brand, products and customers.

2. DRIVE TOTAL UK BRAND SALES

Our objective is to deliver a seamless and enjoyable experience to customers, irrespective of how, when and where they choose to shop the Joules brand. The continued development of an integrated and consistent customer focused proposition is central to our growth strategy and is reflected in our infrastructure investments. The flexibility of our integrated model has been key to our strong performance in the first half, enabling us to engage with our customers wherever they choose to interact with and purchase the brand.

Total UK revenue increased by 11.7% to £95.3 million in the Period.

E-commerce channels now represent almost 50% of all retail sales, reflecting strong growth both on our owned E-commerce platform (joules.com) and on our partner retailer platforms. Conversion of online traffic to purchases on joules.com continued to improve, driven by customer experience enhancements and infrastructure investments including on-site search enhancements, cross-sell enhancements and product imagery improvements.

We opened five new stores in the Period, across lifestyle, high street and outlet locations. The payback period on new stores remains comfortably below our appraisal threshold of 24 months. We evaluate new stores and monitor existing store performance based on contribution to our flexible 'total retail' model, considering the value that each location delivers through brand awareness, customer acquisition and the touch-points along a customer's digital journey. Approximately 20% of store transactions now relate to non-traditional store sales activities including, for example click & collect, order-in-store and E-commerce returns or exchange.

We successfully converted our John Lewis womenswear wholesale business to the retail concession model during the first half. This model, which we also operate with Next Label, provides us with more control of the product proposition and ranging, which ensures better consistency of proposition for our customers across all our retail channels.

Despite the challenging UK high street, we have continued to benefit from good performance in our wholesale partners, with an evolving presence in both online only and leisure destination retailers.

3. INTERNATIONAL EXPANSION

The Joules brand and products continue to resonate well internationally and, during the Period, we made further progress in our priority markets in North America and Germany, through both Wholesale and E-commerce channels. We have a growing customer base in both markets.

Total international revenue increased by 64.2% to £17.8 million in the Period, representing 15.8% of Group revenue.

Our US wholesale business saw very strong performance, with revenue growing by more than 100%. This was driven by good growth in key existing accounts, including Dillard's and Nordstrom, where we increased distribution into more locations and grew the product range; continued sales growth in our large base of independent stockists; and the addition of several new key accounts that provide exciting growth potential for the future.

Our German wholesale business grew by approximately 35% with the brand continuing to be received well by the important independent stockist channel. We continue to develop our relationship with Zalando, increasing the range and depth of our product offering with them during the Period.

Looking forward, we have strong growth in our Spring/Summer 2019 international order book in both North America and Germany. We have also recently launched an E-commerce proposition for several other international markets, offering localised payment and delivery options. Although still small the early results from this new offer are encouraging and provide further support for the international appeal of the Joules brand.

4. PRODUCT EXTENSION

Our core categories continue to perform well, with outerwear, tops, dresses and knitwear within womenswear and kidswear again resonating strongly with customers.

We continued to extend our product offering within, and into, categories to meet the lifestyle needs of our customers, which are appropriate for our brand. We extended our in-house developed ranges in women's accessories, most notably bags, and in footwear.

This organic product extension was complemented by the further development of Joules branded licensed products, on which we work closely with a small number of carefully selected partners. In the Period we launched a range of ladies' and men's watches and a stationery and gifting collection, both of which have received a very positive customer reaction. At the end of the period we launched a range of Joules DAB radios and complementary small electricals.

In addition to these new partnerships, we extended our collaboration with Boots on toiletries and beauty gifting to include a men's collection for Christmas 2018 and we continue to see growth in our ladies' toiletries range. Our DFS sofa collections continued to perform very well, supported by an extension to 63 stores and the introduction of a sofa bed to the collection.

This growth and extension in existing partnerships coupled with the early positive results from new partnerships delivered very strong licensing revenue growth in the Period.

Looking forward we have an exciting pipeline of brand relevant product category extensions.

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6 Customer numbers and historic comparisons have been restated to reflect better data matching

OUTLOOK

The strength of the Joules brand, our unique products and loyal and growing customer base combined with our flexible integrated 'total retail' model and talented team position us well to continue to grow within what will remain a challenging retail environment. We anticipate that customer expectations and shopping behaviours will continue to evolve at pace and the physical retail sector will continue to face the pressures of declining footfall and above inflation cost growth. When combined with the current economic uncertainty it is likely to mean that the overall UK retail sector will continue to be quite challenging over the foreseeable future. Our rapidly growing international business and contribution from brand licensing partnerships provide further confidence in our continued progress.

At the time of writing this report the outcome of Brexit remains unclear. We have, for some time, been preparing for, developing and testing contingency plans based on a 'hard Brexit' on 29 March 2019. These plans include the establishment of an EU based third party distribution centre that will be operational from April 2019 to serve our EU wholesale customers; scheduling, where possible, earlier in-bound deliveries for our Spring/Summer 2019 products; evaluating and preparing for increased administrative activities such as export documentation; and extending hedging arrangements for our US dollar foreign currency requirements given the potential for Sterling volatility.

During 2019 the brand will celebrate its 30th Birthday, marking three decades of Joules delivering fun, quality clothing for families and friends to make lasting memories together. We have some very exciting celebrations planned throughout the year built around some of the special moments we have shared with our customers since the Joules story began - when Tom started selling practical clothing with a distinctive twist on a stand at a country show in Leicestershire - back in 1989.

Our strong retail sales performance has continued through the important Christmas trading period, with sales for the seven weeks to 6 January 2019 up by 11.7%.

This continued robust retail sales performance and strength of the Spring Summer 2019 wholesale order book give the Board confidence in the Group achieving full year 2019 Underlying PBT in line with its expectations.  

STATEMENT OF DIRECTORS' RESPONSIBILITIES

We confirm to the best of our knowledge that:

Notes to the condensed consolidated financial statements

For the six months ended 25 November 2018

Reporting entity

Joules Group plc is a company domiciled in the United Kingdom. The condensed interim financial statements of Joules Group plc as at, and for the 26 weeks ended, 25 November 2018 comprise the Company and its subsidiaries (together referred to as the "Group").

The Group financial statements as at, and for the 52 weeks ended, 27 May 2018 are available on request from the Company's registered office at Joules Group plc, 16 The Point, Rockingham Road, Market Harborough, Leicestershire, LE16 7QU or at www.joulesgroup.com.

1. Basis for preparation

The interim financial statements have been prepared in accordance with the recognition and measurement requirements of International Financial Reporting Standards (IFRS) and IFRIC interpretations issued by the International Accounting Standards Board (IASB) adopted by the European Union.

The accounting policies adopted in the preparation of the interim financial statements are the same as those set out in the Group's financial statements for the 52 weeks ended 27 May 2018, except for the adoption of new standards effective from 28 May 2018. The Group has not early adopted any other standard, interpretation or amendment that has been issued but is not effective.

This report is prepared in accordance with IAS 34. The interim financial statements do not constitute statutory accounts within the meaning of section 435 of the Companies Act 2006. Statutory accounts for Joules Group plc for the year ended 27 May 2018 have been delivered to the Registrar of Companies. The auditor's report on those accounts was unmodified, did not draw attention to any matters by way of emphasis and did not contain a statement under Section 498 (2) or (3) of the Companies Act 2006.

Going concern

The Directors have prepared a detailed forecast with a supporting business plan for the foreseeable future. The forecast indicates that the Group will remain in compliance with covenants throughout the forecast period. As such, the Directors have a reasonable expectation the Company and Group will have adequate resources to continue in operational existence for the foreseeable future. Therefore, they continue to prepare the financial statements on the basis of going concern.

New significant accounting policies

This is the first set of the Group's financial statements, where IFRS 9 and IFRS 15 have been applied. There was no impact on the previously reported numbers from application of IFRS 9 or IFRS 15.

IFRS 9 "Financial instruments"

The standard is applicable to financial assets and financial liabilities, and covers the classification, measurement, impairment and derecognition of financial assets and financial liabilities together with introducing new rules for hedge accounting and a new impairment model for financial assets.

The adoption of IFRS 9 has no material impact on the Group's financial statements. At the date of initial application of IFRS 9, all of the Group's existing hedging relationships were eligible to be treated as continuing hedge relationships. Consistent with prior periods, the Group has continued to designate the change in fair value of the entire forward contract in the Group's cash flow hedge relationship and, as such, the adoption of hedge accounting requirements of IFRS 9 had no significant impact on the Group's financial statements in the current or prior financial periods.

IFRS 15 "Revenue from contracts with customers"

IFRS 15 supersedes IAS 11 "Construction contracts", IAS 18 "Revenue" and related interpretations and it applies to all revenue arising from contracts with customers, unless those contracts are in the scope of other standards. Under IFRS 15, revenue is recognised at an amount that reflects the consideration to which an entity expects to be entitled in exchange for transferring goods or services to a customer.

The Group has adopted IFRS 15 in the Period using the 'modified retrospective method' of adoption. The key considerations associated with the impact of adopting IFRS 15 are described below. There was no impact on profit after tax or retained earnings on adoption of IFRS 15.

Sale of goods

The Group's contracts with customers for the sale of product generally include one performance obligation. The Directors have concluded that revenue from the sale of product should be recognised at the point in time when control of the asset is transferred to the customer. This is as follows for our different sales channels:

· Own store and concession revenue is recognised at point of sale of product; and

· Wholesale and E-commerce revenue is recognised on either dispatch or delivery.

This does not represent a change to the Group's accounting policy and therefore, the adoption of IFRS 15 did not have an impact on the timing of revenue recognition.

Variable consideration

Product sales provide customers with a right of return within a specified period and are therefore deemed to be variable under IFRS 15.

Under IFRS 15, the Group uses the expected value method to estimate the value of goods that will be returned because this method best predicts the amount of variable consideration to which the Group will be entitled. Under the old standard, IAS 18, expected returns were estimated using a similar approach and therefore no adjustment to the value of variable consideration was required on transition to IFRS 15.

In terms of presentation, prior to the adoption of IFRS 15, the amount of revenue relating to expected returns (and corresponding adjustment to cost of sales) was deferred and recognised net in the balance sheet within current liabilities.

Under IFRS 15 a right of return is not a separate performance obligation and the Group is required to recognise revenue net of estimated returns. A returns liability and a corresponding asset representing the right to recover products from the customer is also recognised. There is no change to the Group's revenue recognition under IFRS 15, however the returns provision was previously recorded on a net basis within current liabilities and therefore on adoption of IFRS 15 the Group was required to adjust inventories and the returns provision to a gross basis. The Group has adopted IFRS 15 using the modified transition approach and has therefore not restated the prior period comparatives for the separate recognition of the returns asset and the increase in the returns provision. The impact in the current financial period of adopting IFRS 15 was an increase of £962,000 in both inventory and current liabilities.

Critical accounting judgements and key sources of estimation uncertainty



Drawing up the financial statements in accordance with IFRS requires management to make the necessary estimates and assessments. Estimates are based on past experience and other reasonable assessment criteria. However, actual results may differ from these estimates and assessments will bring about an adjustment in the value of the assets and liabilities in the next financial year.

In accordance with IAS 1 the Group is required to disclose critical accounting judgements and key sources of estimation uncertainty. The Directors have assessed that the Group does not have any critical accounting judgements or key estimations that have been used in assumptions that may have a material impact on the amounts of assets and liabilities recognised in the financial statements.

Areas of non-key financial estimates that do not have a material impact on the financial statements are detailed below:

Impairment: Stores are identified for impairment testing primarily on the basis of current performance, with growth assumptions based on Directors' knowledge and experience. The Directors have used forecast models and an appropriate pre-tax weighted average cost of capital in its property, plant and equipment impairment calculations.

Inventory valuation: Inventory is carried in the financial statements at the lower of cost and net realisable value. Cost includes product purchase price and associated inward transportation costs. Net realisable value is based on estimated selling price less further costs incurred to disposal. The Directors have used their knowledge and experience of the retail industry in determining the level and rates of provisioning required to calculate the appropriate inventory carrying values. Sales in the retail industry vary with changes in consumer demand. As a result, there is a risk that the cost of inventory exceeds its net realisable value. The Directors calculate the inventory provision on the basis of the ageing profile of what is in stock. Adjustments are made where appropriate based on Directors' knowledge and experience to calculate the appropriate inventory carrying values.

Returns provision: Accruals for sales refunds are based on recent historical returns and the Directors best estimates and are allocated to the period in which the revenue is recorded.

2. Revenue

An analysis of turnover by geographical market is given below:

3. Segmental review

The Group has three reportable segments; Retail, Wholesale and Other. For each of the three segments, the Group's chief operating decision maker (the "Board") reviews internal management reports on a monthly basis. Each segment can be summarised as follows:

· Retail: Retail includes sales and costs relevant to owned stores, E-commerce, shows, 3rd party concessions and franchises.

· Wholesale: Wholesale includes sales and costs relevant to the sale of products to other retail businesses or distributors for onward sale to their customer.

· Other: Other includes income from licensing, central costs and items that are not distinguishable into categories above.

The accounting policies of the reportable segments are the same as described in note 1. Information regarding the results of each reportable segment is included below. Segment results, being underlying earnings before interest, taxation and share based payment charge, are used to measure performance as the Board believes that such information is the most relevant in evaluating the performance of certain segments relative to other entities that operate within these industries.

There are no discontinued operations in the period.

5. Tax

6. Property, plant and equipment and intangibles

During the Period the Group made additions of £5,701,000 (November 2017: £13,037,000) and disposals of £nil (November 2017: £nil). During the Period the Group's capital expenditure consisted of new stores and investment in IT systems to support E-commerce and stores.

7. Dividends

In the Period a final dividend of 1.30 pence per share was paid with a total value of £1,141,118 (November 2017: £1,050,022) in respect of the year ended 27 May 2018. The Board has declared an interim dividend for the year ending 26 May 2019. The interim dividend of 0.75 pence per share (H1 FY18: 0.70 pence per share) will be paid on 9 April 2019 to those shareholders on the register at the close of business on 8 March 2019.

8. Hedging and Translation reserve

Hedging reserve

The reserve represents the cumulative gains and losses on hedging instruments in cash flow hedges. The cumulative deferred gain or loss on the hedging instrument is recognised in profit or loss only when the hedge transaction impacts the profit or loss or is included as a basis adjustment to the non-financial hedged item, consistent with the applicable accounting policy.

Translation reserve

Exchange differences relating to the translation of the net assets of the Group's foreign operations which relate to subsidiaries only, from their functional currency into the Group's presentational currency being Sterling, are recognised directly to the translation reserve.

9. Financial instruments

Derivative financial instruments and cash flow hedges

The Group holds derivative financial instruments to hedge its foreign currency exposures. These derivatives, classified as cash flow hedges, are initially recognised at fair value and then re-measured at fair value at the end of each reporting date. Hedging instruments are documented at inception and effectiveness is tested throughout their duration. Changes in the value of cash flow hedges are recognised in other comprehensive income and any ineffective portion is immediately recognised in the statement of comprehensive income. If the firm commitment or forecast transaction that is the subject of a cash flow hedge results in the recognition of a non-financial asset or liability, then at the time the asset is recognised, the associated gains or losses on the derivative that had been previously recognised on other comprehensive income are included in the initial measurement of the asset or liability. For hedges that do not result in the recognition of an asset or liability, amounts deferred in other comprehensive income are recognised in the statement of comprehensive income in the same period in which the hedged item affects net profit.

9. Financial instruments (continued)

10. Earnings per share