JDSPY (JDSPY) Q2 2027 Earnings Report, Transcript and Summary

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 the agenda 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 open for Q&A. We delivered a resilient sales performance in the first half against a backdrop that was challenging for our industry and for our customers. Youth unemployment and cost of living pressure both increased, while the footwear product cycle continued 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 trading condition is to control the controllables. That means focusing on our customers, 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 customers 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 accessories increased to 36% of group sales, in line with our strategy, supported by a strong product lineup supplemented by our own brand and licensed brand with faster and more agile reaction to customer preference. 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 commercetools, which unlock new capability, expand choice and service for our customers. Our discipline on cost and capital are again strengthening our balance sheet. Net cash improved by nearly GBP 300 million year-on-year, even after returning GBP 260 million to shareholders through buybacks 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. 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 engaged with our customers, we made controlled price investments, particularly in our online offer. The underlying impact of these investments on our gross margin was a reduction of 50 basis points. This was partially offset by higher marketing contributions year-on-year. For accounting presentation purposes, the core 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 0.40p 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 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 JD Gyms 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 JD fascia delivered a more resilient performance versus our complementary businesses with like-for-like of minus 1.1%, supported by a relatively more diverse product proposition. 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 a 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 up 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 a promotional market. This was partially offset by continued momentum in JD Gyms as well as an improved performance in our outdoor business, which made meaningful operational progress in the half, including the ongoing simplification of its store estate and a well-received refresh of its product ranges. Overall, U.K. organic sales were up 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 costs within OpEx, which is reflective of how we manage and report the business internally. Starting with the headwinds from the left-hand side, the like-for-like gross margin rate reduction of 60 basis points, which excludes gross margin from new space, represented 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 costs continues to be a priority. As I described in the previous slide, we fully offset like-for-like cost inflation in the half through our variable and structural cost reductions. We proactively flex store staff levels based on customer activity to help manage labor cost inflation. We continue to leverage our technology to drive operational efficiencies as we automated internal processes, and we progressed the rollout of RFID in our JD 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, all delivering meaningful savings in H1 with further benefits expected as these actions continue to flow through to H2. There is more we are going after in H2 as we leverage our new finance systems and scheduling tools and make further progress in modernizing and automating our distribution centers to name just a few examples. We expect these actions to deliver additional benefits in H2. So overall, we expect cost savings to be more H2 weighted. And as set out in May, we're on track to significantly offset like-for-like OpEx inflation for the full year. On the next slide, we set out our summary cash flows for the half, starting with our statutory PBT of 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. Lease 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 gyms CapEx was 19% lower year-on-year, our approach is delivering good results. Strategically, the investment in our store estate is increasingly as much about improving the productivity of our existing store estate as it is about new space. Through relocations, upsizes and conversions, including initiatives such as our fewer, bigger, better approach in the 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 the 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 expect it to replace our current like-for-like sales measure. Outside of relocations, upsizes and 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 periods 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 diversifying 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 priorities 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 how customer can discover and buy JD product directly through AI platform. In U.S., we are one of the first retailer to achieve this milestone. Customer can complete their entire shopping journey within the AI platform from discovery to payment, thanks to our partnership with Google, Stripe and commercetools. We are actively ramping this up to reach more customers. This is an early example of how shopping journeys 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 Hibbett, AI-powered voice agents already handle 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 SKU store level with a plus 1.5% sales 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 members accounted for 40% of JD U.K. in-store revenue and 45% of all JD U.S. transactions. STATUS members have average order value approximately 20% higher than non-loyalty customers. It gives us the tool to build a strong and unique relationship with our customers 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 products for them. For example, in the first half, each targeted communication generated 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 and newer non-sneaker styles are gaining momentum. While relatively small today in our mix, Mary Jane Ballet Flats, Ballerina, Loafer, and brands like Birkenstock and Havaianas are supporting continued growth in the other category. And the question we ask ourselves, is the future of sneaker a revision of formal shoes. Whatever is the future, we will win with a winner. In running, we have now 2 subcategories: retro running and new running with On, HOKA, Salomon, Vomero Plus, all growing very fast. Running clubs and gyms are becoming the new nightclubs. Health, fitness and well-being are increasingly a priority for our core customers. This shift of customer trend within our running category is helping to offset the year-on-year mix decline in retro basketball and retro football category. In apparel, performance and street fashion continue to be the standout categories. The data shown on the slide is for the 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 compelling price points. They also provide structural margin benefits. With products unavailable elsewhere, we have greater control over pricing and less exposed to the promotional dynamics that affect the broader market. We combine the expertise of our industry-leading buyers and merchandisers with insight from thousands of young store colleagues around the world. This keeps us close to how our customers shop and how trends are changing. This is why we are broadening the assortment across athleisure, streetwear and performance, more brands. More style and more trends, all carefully curated for the JD customer. Even more important, we don't just sell brands. We shape what the brands sell. Today, around 50% of our apparel assortment and 30% of our footwear assortment is exclusive to JD. This is a real competitive advantage. We combine our deep customer knowledge, our clear positioning and our scale to work with our brand partner to develop products relevant to our customer and unique to us. For the brand, we bring something equally important, scale and access to a large, clearly defined customer base. This makes us the #1 strategic partner; and for JD, creates differentiation, reduce direct price comparison, and gives us greater influence over the product we sell. As the market matures, I believe this becomes even more important. This is why we see exclusive product as a core competitive capability. It makes us unique for our customer and for our brand partner. The second strategic priority is driving better store productivity. There are 3 parts: optimizing the estate, converting stores where other fascias can perform better within the demographic, and continuing with fewer, bigger and better stores. As Dominic highlighted, we continue to review every store and invest where we see the best customer and financial returns. At Hibbett, 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 and leaner 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 stores by the end of FY '28 and to complete around 60 City Gear conversions this year. The aim is straightforward, put the strongest fascia in each location and improve the return from the estate. In the 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 gives us confidence in the strategy. Beyond our own store estate, we are building out our international franchise platform with a focus on driving the JD brand into new and high-growth market. Further to our work in Eastern Europe, we have signed a long-term agreement with Grupo Axo, Mexico's leading 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 stores in Africa, in Middle East and Asia. With Mexico and Eastern Europe to follow soon, we will move to well over 250 stores soon, supporting our margin and return on capital employed. Turning to e-commerce. We have now launched new 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 markets 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. Replatforming 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, DTLR 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 fascias. We will also build on the agentic purchasing 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-purchase service, while enabling new services and propositions that will propel JD omnichannel 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, womenswear is one of our biggest growth levers in North America. A stronger apparel proposition drives traffic, basket size, improved margin mix and makes our store a more distinctive destination. 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 Heerlen distribution center across both store and customer fulfillment. We have now wound 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 the outdoor business, while our gym business continues to perform strongly. Across all regions, we will maintain the same cost and capital discipline that supports us in the first half. And for North America and Europe, in particular, the ongoing development of our omnichannel and loyalty offers are a 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 replatforming, and scaling AI and loyalty. Our agile multi-brand model and growing own brand offer is helping us respond as footwear and apparel trends change, while online continues to grow, supported by our new technology platform. Tight cost discipline means that we held our 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 return 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 generate 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 you, 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 BNPP.

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 sort of what's happened to conversion there and where it's had the greatest impact. That's the first one. And then secondly, I noted that you're maintaining the sort of free cash flow guidance, but lowering CapEx slightly. I was wondering if you could take us through the moving parts of that?

Okay. I will take the replatforming, and Dominic will answer the free cash flow. Replatforming in U.K. In fact, it's not only one replatforming, it's that we have replatformed our 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 definitively, it's proving to increase the conversion and increasing our sales. And that has been in line with a very good first half for our outdoor business. So it has proved to be beneficial not only to our online business but to our client. For U.K., for JD U.K., it's too early to say. It's happened in August. So I think that the first thing we are seeing is 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.

Nick, yes. So our guidance on free cash flow is unchanged from where we put in May. I think it's fair to say there's an element of conservatism in our position at 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 that just reflects our highly disciplined approach to where we spend our money on CapEx. We continue to invest in the business. As I and Régis spoke about in our presentations, our store CapEx increasingly around 40% is on reinvesting in new (sic) [ existing ] estate, but we continue to invest in new space. But in a slightly softer market, our criteria, when you look at the margins, there are slightly fewer new stores that we feel comfortable opening at this point in time. So that all flows through to a slightly lower CapEx spend for the year. And then overall, we see an improved position on working capital outflow this year compared to last year. So all of those factors flow through to underpinning our free cash flow guidance.

Our next question will come from Richard Taylor with Barclays.

Hope you can hear me. Just a question really on range. Can you tell us what you're thinking strategically about product when 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 up around 2% constant currency versus sales down 1% or so. I realize you've had back-to-school. So interested to know what inventory would have been excluding that sort of timing difference. But just more about how you're thinking about inventory going forward given expectations of lower like-for-like sales growth in the second half from consensus. So I guess inventory is still up, but the outlook [ doesn't ] look great. Does this still reflect oversupply of 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 anything. We have been the first one to implement On in the U.K. We have the exclusivity almost till last year. So it has been us building the own brand in the U.K. and in Europe. So I think, as I always say, we are selling to our customer what they want to buy. And if they want to buy Nike, we propose Nike; if they want to buy On, if they want to buy ON. So our merchandising is fully flexible. As you know, we don't sell our space. Contrary to some other retailers, our space is fully flexible as we don't sell the space. So we have a full flexibility. And I think our assortment is moving linked to the trends and nothing else than the trends and the appetite for our customer for different products. And we believe that we are well placed and our market share, in fact, is higher with some of the new brands than it is with our #1 brand. So it's replaced that. And our return on space is the same -- is higher with Nike than it is with the other brands showing that we are investing for the other brands. So all of that shows that we are not waiting anything, and we'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 with the same playbook, which is around how we make sure that we have a distinctive unique offer for our customers. And that's the way we work with all the brands. So there is no difference between one brand to another one. There is brands we are more agile than other brands, and that give us more ability to have exclusivity, and some brands are more respectful or having a more tight distribution policy than other brands. So that differ. But our strategy is the same, it's how we define products that are the best for our customer and how we do that in partnership with the brands. And we are the #1 partner for most of the brands. So our size of business means that we are the #1, #2 partner for all the brands. So there is no difference 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 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, plus 4%. In a muted market, that's a 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 and the way you produce footwear as quickly as we would like to. But I think to be very sure, 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 for North America as a whole, back-to-school was delayed. Labor Day was a week later and all of that things backwards. So we feel comfortable at the end of the first half in terms of where our stock position is. But I think as you know well, we've got a good track record of managing our stock tightly. We buy tightly and we manage it and turn it over well. And we've got the biggest period to come. We've obviously been through back-to-school. We have Black Friday and peak to come. That 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 when you have a softer period. I don't think we see that materially changing through the first (sic) [ second ] half. We've seen a promotional environment. That has resulted in price investment we've taken and we expect that to continue through the second half. So I don't think we see any material change from where we've been in the first half through to the second half in terms of stock positioning in the industry as a whole and impact on our margins.

Our next question will come from Anne Critchlow with Berenberg.

I've got one 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 U.S. quite strongly online. I think that what we have seen is a faster checkout, especially the one-page checkout has proved 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 gives us a lot of options long term. We were not able to do click and collect same day in our store because of our old platform, we were not able to marketplace. There's plenty of limitations that we limited to, and that should help us to grow our digital business in the coming 18 to 24 months. It will not be a thing and it's moving double right away. But I think it's more a midterm continued growth of 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 contributions. I would have thought, in a more subdued demand environment, marketing contributions might be down. So I guess it would be helpful if you could explain what's going on there, what's driving that increase? That's the first one. And then the second one was, was there a positive 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 there is no element of that. 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 brands, because they want to create demand, they want to create appetite, and they know that JD customer is the most important to create the trends and to create that. So I think they have diverted some money that they have for other brands for other ways of promoting their 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 brands. 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.

Firstly, brand 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. Where do you think we will be in the second half? Could 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 it.

Brand recognition...

I will do the brand recognition and Dominic will do the other two. So brand recognition in the U.S. I think the main driver of our JD brand recognition, because that's the one you were talking about, is linked to our store estate and to the increase of our store estate. We have done a fantastic job in New York, and we see that, that it's a very influential and very important market. And we see that our growth and we see the brand recognition going up. The rest of U.S., we are doing city by city, key market by key market, because it will be wrong to try 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 is on the field when we go to Florida in October.

Thank you, Régis. And Jonathan, on your other 2 questions. On gross margin, our statutory gross margin was down 20 basis points. That does reflect 2 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. And that's for new space and like-for-like, like-for-like down about 60 basis points. And that's been offset by the marketing contributions that we've had. Régis spoke about those earlier on. In our own internal accounts, we look at those as being netted off against the marketing spend that we make 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 in the second half, we're not seeing anything that will change the price investment that we'll need to make as we go through H2. So I think around that at least 50 basis points, I would say, remains a valid assumption to roll forward. There are likely to be some marketing contributions. It's very difficult at this stage to say exactly what those will be, we build those campaigns with our brand through 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. It's important that we see how the second half trends persist and how we see particularly peak season through December performing. Having said that, I think if you look at the top line overall, I don't think we see anything today that will result in a material change in the macro environment in the consumer environment, or indeed in the footwear side as we go into FY '28, no particular silver bullets that 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 a sensible approach. Inflation continues. I mean, we're all seeing inflation starting to increase a bit now. So I think that's one that we're monitoring closely. Clearly, we're taking a lot of actions around how we offset that. But as the headwind potentially [ builds ], that will clearly be a harder point 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 the controllables that we're doing just to ensure that we enter next year in the best position possible.

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

All right. Just 2 questions from me, please, if you don't mind. Firstly, just digging deeper into the gross margin. And gross margin, if I look by divisions, I mean, sporting goods and outdoors, the 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 athleisure 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 will take the gross margin. You start?

Yes, I'll start on 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, Outdoor in the U.K., Sprinter, Sport Zone in Iberia, and Cosmos in 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 at good full price to that customer set. And also, our businesses in Greece and Outdoors have done a really good job over the last 12 months of improving their stock position, which has allowed them to put more newness in front of customers. We see it particularly in our Outdoors business. And good old-fashioned retail, if you put newness in front of customers, improve your stock, you see your gross margin improve. So I think on an annual basis as we go into second half, that will persist. Overall for the group, I think the answer I gave to Jonathan earlier on is that when you look at the balance between sports fashion and the sort of products, particularly footwear 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 probably 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 have been clear where we want to operate by ourselves and where we don't want to operate ourself. And I think it's linked to 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 ability to operate in the market on the property and some of the [ regulations ]. And if you take Eastern Europe, the first element is small markets. It's a complex addition of small markets with different languages, some are in Europe, some are not in Europe, so different currency. And I think that it's a reflection where -- which is reflection that are happening at the group level, which is how we do the best of the 2 worlds, localize and leverage our scale. And when you look at Eastern Europe, we definitely didn't localize. And to be fair, it's difficult for me to blame the team. When the team is looking after 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 2 worlds is having a local partner through franchise and at the same moment, leveraging our scale. And I think the great thing is that Sport Vision already operated in 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 Buzz. And they recognize that our expertise is worth doing a partnership. And that's what we're doing. So it's the best of the 2 worlds, operate with the best format and the best concept that exists in our industry, which is JD, and at the same moment, being able to localize through a partner that lives and breathes those small countries. And that's the strategy behind that. In terms of financial, the way it works is that we will have an inflow of cash, because we will stop to stock for those countries, and that will come gradually because we have placed orders. So this 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 the assets that we have, because we are selling our assets in those countries to Sport Vision. So that will have a positive impact in terms of our cash flow and reduce our cash (sic) [ assets ], but at the group level, it's 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 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 2 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 are there any other puts and takes we should be considering when thinking about modeling our Q3 like-for-likes? And then a follow-up question, please, on the industry inventory 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 appreciate you don't have a magic ball, but 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 seems 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 brand product for next year and 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. I think that on your specific question around how we look around buying, I think that we have not seen on macro. There is no element that says that there is something very different than what we've seen today. So I think that we are not expecting something new. We continue to see the trends around running and continue the investment around there. We continue to see 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 there. I think the best example is that Salomon XT-6. We started with XT-6 4 years ago. I remember I was there and we said we're going to push Salomon. And it has taken 3 years to get to something which is starting to be meaningful and they're starting to really look at the key franchise worldwide. So it takes time. And I think you need to not to forget, if you scale a franchise too quickly, you kill it right away. And whoever you are, customers need time to build franchise. And I think XT-6 is for me the best example. It's a key franchise. It's now part of our top 10, and it's working everywhere, but it has taken 4 years to build that, to what is today significant shoes. And it will not be right for any brands to believe that you can do in 1 year, launching a franchise and scaling, that will destroy each franchise. And we have seen that every attempt from the brand to go to scale too quickly, they kill the franchise they want. So this is about fashion. This is about fashion trends, and that needs to be nurtured, to be developed at a speed that is in line with the consumer. So no big change for 2028 as we speak today. In terms of the industry, I think your question is a good question around promotion. I think it will stop to be promotional when everyone will 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 stop to buy stupidly and too much. And I think that our key competitor has been great in doing the wrong things, which is to say everything will go rosy in September. We were proved to be right. At that time you were looking at us saying, well, I think that -- so as soon as everyone recognized 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 will not happen. And I think that as soon as everyone recognized that, they will stop to buy for a market that doesn't exist, and that means that you will not have excess stock. So that's as simple as that. So we are in that place, and you have seen how disciplined we are in our buy. We need the industry to recognize the same and to 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 spurious accuracy, 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 with footwear cycle, where our consumer is, and the resulting promotional backdrop that we're operating in. So I think those are the 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?

Okay. Dominic will do the capital, and I'll do what...

Yes, so the sexy Mexico.

Sexy Mexico.

Yes. So I will do the capital allocation. So it's a very good question. I think 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, which we continue to do, maintaining leverage headroom for the buyout of the Genesis put option in 2 to 3 years' time. Beyond that, shareholder distribution is a key part of our overall strategy and capital allocation. We have a rolling GBP 200 million share buyback, and we're well through that for this particular year. And at the full year, we said that we would grow our dividend in a progressive way over time to get to be -- to have a yield in line with the sector. Now I think you know that the sector is around 2-plus percent. We're below that at the moment. We're not rushing to that, but with around a 20% increase in the full year dividend last year, you can see our intent and we will deliver that over time. I think your Mexico is on.

Sorry, I was not there. So Mexico, so 140 stores. I think the main opportunity is not the number of stores, it's the size of the stores. I think that what we are taking over is small stores. It was a tough brand. 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 are already existing, they already have all the brands and all the stuff, but they believe that the JD format is a much more powerful format and much more sustainable format, and they wanted to invest and to pay us royalty in order to get access to our knowledge. And I think that shows you how strong is JD in proposition and concept, and how we are able to create value. So that's the purpose of it. Axo feels that we were adding much more value to the proposition than the current proposition that they had. And in terms of number of stores, I don't think it's a lot more stores, but it's definitely bigger, better store. And that's what we are embarking on, is to extend to create a real destination, a real offer where you have footwear and apparel together, which creates a distinctive concept and really leverage the proposition. 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, Régis, in 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 the JD brand is slightly different over there in terms of being slightly more female friendly? Or are you sort of thinking of doing something slightly different versus what you've been doing in the U.K. and Europe?

Thank you, Kate, for the question. Mexico, as I said, there is 3 criteria, and right size is there. The access to property is not there. So if you are not a local player, you don't access property. So that has been an easy to do business or not. And it's not always easy to do business in Mexico, currency, security. So that's the 3 criteria. The size criteria is definitely on doing by ourselves. But on the property access and on the way to do business, it is definitively a franchise market for us. And it's interesting when you talk with our American colleagues, they see Mexico as a very difficult place. So they were not rushing there, because they have the opportunity of Shoe Palace. And Shoe Palace doesn't have a franchise and as strong model as JD to go there. So it's definitively that -- which is the same as Indonesia, same as Philippines, the same as South Africa, the same as Middle East. It's all the country where we believe that it's much better to have a local partner than to operate by ourselves. In terms of the womenswear, I think we see the same things in the U.K. We have done a very good job to increase our range in womenswear. And I think that in U.K. proved to be beneficial, the same as we do in U.S. It's all about finding the speed to market. And I think 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 very successfully with Adidas with drop 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 all about product and all about the ability to connect. And I think that we have a good connection with the women customers in shoe products 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 Liu.

I just have a quick follow-up question from Grace's questions earlier. On footwear growth, I wanted to understand what is required for footwear to go back to growth. I guess 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 on footwear. But you seem to be relatively, I think, comfortable with your footwear inventory. I was wondering if you can comment on, I guess, how do you feel about your footwear inventory, both in terms of size and value, but also in terms of composition?

Yes. I think that we feel -- will not say something different, we feel good. But this is retail. If we always have too much of the things, that is not good enough and not enough of the good that is 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 product, and I wish to have a little bit less on some other. But I think it's what we 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 and what we said before is to have a good stock position in the industry, because if you have too much of something and as it is today, you have discount and customers waiting for the next discount to come, because it's interesting to see that in Europe and U.K. is mostly driven by a lower ATV, so a lower average value that is driving the slightly positive in U.K. and slightly negative in Europe. But this is mostly around the average value, which I think is about a reflection on 2 things. There is too much product there. So they wait for discounts to come and they don't buy the things, and some appetite about something new and exciting, because at that moment, paying 120 or 150 doesn't matter if that's the shoes you want. So it's a little bit of 2. In U.S., it's more around high-yield product and the fact that there are products that everyone wants to buy and are rushing to. So I think it's about creating the heat in the industry, but the main element is to stop the promotional activity where customers can wait for next months 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 heat 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 Samba chain and ballet shoes from Adidas. We are seeing that with On Cloudtilt, we are seeing that through Salomon XT-6. So there is an element of that. It's true that having the market leader been in a leading position, especially in U.S., it is part of the recipe to have a market that is in a better shape.

Thank you. 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 questions. It's always better to have it in person, but I hope you will enjoy Adidas Innovation Day. I was talking with Bjørn and Mathieu yesterday. So they were very stressed to make sure that they showcase in the best way possible innovation and running. So I hope you enjoy your day in Herzo, and looking forward to see you next time in person. Thank you.

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