Shoe Zone Regulatory News (SHOE)

23 June 2020

Shoe Zone plc

Interim Results

Shoe Zone plc ("Shoe Zone", the "Company" or the "Group") is pleased to announce its Interim Results for the six months to 4 April 2020.

Financial Update

COVID-19 Update

The information communicated in this announcement contains inside information for the purposes of Article 7 of the Market Abuse Regulation (EU) No. 596/2014. Upon the publication of this announcement via regulatory news service this inside information is now considered to be in the public domain.

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Chief Executive's Statement

Introduction

The Group operates from a portfolio of around 470 stores and a comprehensive digital proposition enabling it to provide a truly multi-channel shopping experience to its customers.

Financial Summary

In the six months to 4 April 2020, the Group generated revenues of £68.9m (2019 H1: £73.0m) and Profit before Tax of £(2.7)m (2019 H1: £1.0m) on a pre-IFRS 16 basis. The implementation of IFRS16 during the period has increased Statutory Profit before Tax by £0.2m resulting in Statutory Profit before Tax of £(2.5)m. A reconciliation of the Income statement is shown below:

The reduction in revenue and profit performance over prior year reflects the early impact of COVID-19. During the period we experienced both disruption in the supply chain and a fall in consumer spending in March resulting in the subsequent closure of retail stores from the 24th March 2020. Prior to this, the five months to February showed a year on year increase in revenue of 2.6%.

The group ended the period with net cash balance of £3.6m (2019: £3.3m). This increase in cash balance has only been achieved through the emergency measures put in place during March to restrict cash outflows. These include cancelation of the 2019 final dividend (£4m), management of payments to suppliers and engagement with landlords to delay and renegotiate monthly and quarterly rents. Capital expenditure for the period was £2.2m compared to £3.2m prior year. Management continues to monitor all costs closely and these remain tightly controlled.

Dividend

Cash conservation continues to be the focus for the business as we emerge from lockdown and therefore no interim dividend will be paid (2019 H1: 3.5p per share). On 29 April 2020, the Group announced the cancellation of its previous dividend policy.

Strategy Update

At the beginning of 2020 we announced an updated strategy to focus on Big Box expansion; Digital growth and Town Centre renewal. We also announced a renewed focus on streamlining business processes and reducing Head Office costs.

The company has made good progress in all of these areas in H1 2020:

COVID-19 Update and Outlook

Following closure of all our stores on 24 March 2020, we continued to sell via our website, www.shoezone.com and via other online partners. Digital performance has delivered high sales growth since lock down increasing from around 6.5% of total company sales to 17% of previously forecasted sales for the lockdown period. This has been driven by a very aggressive Buy One Get One Free (BOGOF) promotion on all stock to generate cash as quickly as possible. Although this has been now been amended to BOGOF on selected lines only it continues to have a significant impact on ongoing digital gross margin levels.

We opened all England, Northern Ireland and the Republic of Ireland stores by the 15 June and the Welsh and Scottish stores will open as soon as government guidance allows. We have implemented all published COVID-19 guidelines in stores and head office to ensure the safety of our colleagues and customers. This includes Perspex screens being retrofitted to tills, distance markings on the floor and limits on the number of customers dependent on store size.

COVID-19 will continue to have an unprecedented impact on the UK economy and the retail industry. Whilst the group has taken all possible steps to ensure that the business will survive through the crisis and continue into the future, the impact is likely to continue to be felt for several years.

As a result of this and following an extensive review of the store portfolio Shoe Zone has closed an additional 20 stores during lockdown and will only open 470 when permitted. The Group has also taken immediate action to reduce costs at Head Office and pause all areas of discretionary spend. Negotiations with landlords have also been accelerated and supplier orders reduced, cancelled or deferred as far as possible.

The Head Office rationalisation programme has meant an additional £0.3m has been incurred in redundancy payments after the balance sheet date. We have also undertaken a review of freehold values held resulting in a write down of £0.9m, giving an additional COVID-19 impact, not included in the first half results of £1.2m.

Cash remains the key focus for the business and as stated on the 29 April 2020, the immediate focus will be on rebuilding cash balances to a higher level than previously carried and repaying the debt taken on as part of the CBILS scheme whilst fulfilling other statutory obligations. The Board remain confident that the Group's current level of funding will be sufficient to secure the future of the business, assuming that sales return to a high proportion of previous sales during the next year.

The Board would like to thank all of the Shoe Zone team and its business partners for their hard work and support in the first half of the financial year and during the current COVID-19 period.

Unaudited consolidated income statement

Unaudited consolidated statement of total comprehensive income

Unaudited consolidated statement of financial position

Unaudited consolidated statement of changes in equity

Unaudited consolidated statement of cash flows

Notes to the financial statements for the 26 weeks ended 4 April 2020

Basis of preparation

The consolidated interim financial statements of the Group for the 26 weeks ended 4 April 2020, which are unaudited, have been prepared in accordance with the same accounting policies, presentation and methods of computation followed in the condensed set of financial statements as applied in the group's latest annual audited financial statements. A copy of those accounts has been delivered to the Registrar of Companies.

The financial information for the 26 weeks ended 4 April 2020, contained in this interim report, does not constitute the full statutory accounts for that period. The Independent Auditors' Report on the Annual Report and Financial Statements for 2019 was unqualified, did not draw attention to any matters by way of emphasis, and did not contain a statement under 498(2) or 498(3) of the Companies Act 2006.

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

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

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

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

In preparing these interim financial statements, the significant judgements made by management in applying the group's accounting policies and the key sources of estimation uncertainty were the same as those applied to the consolidated financial statements reported in the latest annual audited financial statements for the 53 weeks ended 5 October 2019.

Going Concern

At the balance sheet date the company had a good cash balance and a strong net current asset position. At the time of signing these accounts, the directors have considered the effect of the Coronavirus on the going concern position, and consider that this does indicate that the company will continue to trade for a period of at least 12 months from the date of publishing these accounts due to the banking facilities available to it and the UK Government support available to businesses during this difficult time.

The financial forecasts prepared by the Directors show that the company will be able to operate within the facilities available to it.

On that basis, the directors have prepared these financial statements on a going concern basis.

Events after the period end

Subsequent to the period end, the Coronavirus pandemic has resulted in a long period of lockdown and closure of non-essential retail. At this stage the directors continue to assess the impact this may have on the company and although there is a high level of uncertainty about the extent and the timeframe of the virus on the global economy, they believe the company is strongly positioned to handle any downturn that may occur in the retail sector.

To date, the directors have undertaken a review of Freehold values held on the balance sheet resulting in a reduction of carrying value from £4.7m to £3.8m. This write down of £0.9m will be included in the full year results.

The head office rationalisation programme has resulted in redundancy payments of £0.3m paid post balance sheet. Again these will be included in the full year results. A review of the viability of all stores continues post exit from lockdown.

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

There are no customers with turnover in excess of 10% of total turnover

Notes to the financial statements for the 26 weeks ended 4 April 2020 (continued)

At the balance sheet date, details of the forward foreign exchange contracts that the group has committed to are as follows:

The taxation charge for the 26 weeks ended 04 April 2020 is based on the estimated effective tax rate for the full year of 19% (2019:19%).