JD Sports Fashion PLC
LSE:JD
Earnings Call Analysis
Q2-2024 Analysis
JD Sports Fashion PLC
JD has shown immense activity in the first half of the year, including leadership enhancement and strengthening governance. Significant strides have been made, from new C-suite appointments to disposing of fashion brands, aiming to acquire minority interests in Iberia, Germany, and Central Europe, and notably, the proposed Courir acquisition in France. Amid a busy six months, the company remains focused on executing its growth vision from the February Capital Markets Day, despite the broader market influences and comparisons with other retailers like Foot Locker and Dick's in the U.S.
JD is on track with their guiding principle of 'triple-double'; double-digit growth, market share, and profit margins, notably forecasting over GBP 1 billion in profit for the full year. This reflects in their first-half performance, with North American operations excelling a 15% growth in premium organic sales and a 12% increase in profit. The intention is to unveil over 200 new JD stores globally, enhancing their physical presence whilst maintaining robust financial health, evidenced by a GBP 1.3 billion net cash position. This robustness emboldens their dividend strategy, signaling financial stability and investor confidence.
With a more detailed view, JD's capital expenditure reflects an upward trend, particularly directed towards new stores and enhancing the supply chain. Efforts to modernize and automate warehouses, such as the one in Derby, are underway, though they incur double running costs temporarily. Investments in IT and cybersecurity amount to GBP 10 million, indicative of JD's commitment to infrastructure and forward-thinking digital strategy, which is fundamental to supporting ongoing growth and future profitability.
JD has continued its expansion strategy by completing acquisitions that afford operational flexibility, notably in Eastern Europe and Southeast Asia. This includes the minority stake acquisition in Malaysia, Thailand, and Singapore, enhancing regional control, and franchising agreements for the Middle East. JD's unique approach to fashion concepts, particularly strengthening its female consumer base through Courir, and rationalization of brand portfolios, aligns with its ethos to harness insights and leverage global infrastructure for broader growth. This strategy sets the stage for JD's scaling intentions, with key developments expected in the coming year.
JD emphasizes investments in cyber security and e-commerce platforms as part of its digital evolution. The promising progress of a loyalty program trial in Manchester is paving the way for an enhanced customer ecosystem, potentially revolutionizing the shopping experience. Additionally, commendable strides in sustainability initiatives showcase JD's commitment to long-term business practices and community investment. This includes utilizing renewable energy sources and contributing to youth development through foundations.
The company is reaping operational synergies between brands such as DTLR and Shoe Palace in the U.S., enhancing apparel expertise and consequently, maximizing sales potential. Additionally, JD carefully manages its seasonal stock, particularly in connection with key partners like Nike, ensuring consistent availability of high-demand products. Prudent fiscal management extends to careful consideration of expansion costs, with an acceptable temporary increase in costs for strategic growth, laying the groundwork for future consolidation.
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Good morning, everyone, and welcome to the JD interim results. I do feel slightly overdressed this morning. Must remember to give a call and work out what the dress code is next time.
What has been an incredibly busy first half. And I have to tell you that the pace at JD is quite extraordinary. As Chairman, of course, I stand above this and sort of my pace is a bit less, but it's interesting to see.
We continue to make really great progress and on the plans that were outlined at the Capital Markets Day. And it is hard to think that the Capital Markets Day was only in February this year. And -- so the pace that we've been going out since is extraordinary. We've continued to build the infrastructure within the business and the foundations have been further strengthened, I think.
Regis continued to build out his top team with a new CFO, new CTO. We've got a new group legal counsel. The governance program we've got in place has been forging ahead. Pete might be able to talk to you a little about that. He's been very central to that. We've added 3 new nets to the Board to add some deep plc experience to a very good Board.
And we've continued with things like disposing of the fashion brands. We've announced our plan to acquire the minority interest in Iberia, Germany and Central Europe. And subject to competition clearance, we've announced the acquisition of Courir in France. So I mean, in terms of things who've got on the tick list for the last 6 months, it's certainly been a very, very busy time. And I commend the management for their incredible efforts.
I think we've also watched with interest how the stock has been buffeted a bit by results of other retailers. We've seen the concerns that have come from the performance of people like Foot Locker and Dick's and so in the U.S. And I kind of remember this at Tesco and where JS results always used to sort of have an impact on Tesco. Yes, over time, the Tesco business became double the size of Sainsbury's here in the U.K. alone, let alone all the other things we're doing with international.
And while certain market conditions affect everyone, we were also on our own path in a way. We were also shaping our own destiny. And I hope over time that JD will start to be seen in that way at the sheer number of opportunities we're pursuing, the growth aspirations we laid down in that Capital Markets Day become more tangible. We are in and off the market, of course, but we're also on our own path, and that's important, I think, to remember.
Anyway, I'll hand over to Regis now who will take you through the numbers. I do want to thank him, and thank you, Regis and the team for the extraordinary efforts in this first half. And I'll let him take you through now some of the numbers that underpin that.
Yes. Thank you very much, Andy. Thank you for your kind words. Can you hear me? Is it okay? Yes.
So good morning to everyone here in the room and on the and for the one who are watching us on the webcast, and thank you for attending our interim results presentation today. Today, I will do a double act, I we'll do the financial and the strategy update. Dominique is joining us on the fourth of October. So not long time that he is joining us on the 4th of October, taking over from Neil. And despite Andy have been a CFO, not a long time ago, 2 or 3 years ago. And me is the same, I've been a CFO, too, but we feel more comfortable to have Pete Fox with us to answer your tricky and picky question at the end of the presentation.
So let's go to the presentation and share with you the numbers. So in the first half, I think you have seen that we have delivered on our strategy and our triple double objective. As you remember, we say double-digit growth. We are delivering 12% organic growth double-digit market share. We are gaining share in every market we operate, including U.K., which is a more mature market and double-digit profit. And as you have seen, we are on track to deliver more than GBP 1 billion profit for the full year, in line with our guidance. We have done particularly well in North America, and we had over scrutiny around North America, but we have done particularly well. I think the numbers is telling. Premium organic sales have been growing by 15% and our profit grew by 12%, which I think is a first-class performance.
As we said during -- as we said, we are delivering the full year profit before tax and adjusted item guidance of 35% in the first half of the GBP 1.040 billion that we want to deliver for the full year. This is down GBP 10 million compared to last year. But as you remember, we are going back to the normal first half, second half split. And last year, the first half, our margin rate was was artificially high because of the fact that we had no clearance and no stock in the market at the end of the quarter.
We are on track to deliver more -- to open more than 200 store, new JD store worldwide, in line with our plan. We opened 83 stores in the first half.
And finally, we have a strong balance sheet. We have a strong cash position with GBP 1.3 billion of net cash on our balance sheet. We give us the ability to increase our dividend to go back to the [cover] that we have before the pandemic.
So the next slide gives you a more detailed understanding of our growth by region. So this is our total business growth. So you can see that -- and you have the total growth, 8%. This includes the divestments that we have done at the end of last year, which we have a very small exchange rate impact, which means that we're going from 8% to 7%. And in terms of currency, you have a 12% organic growth.
So the difference between organic growth and like-for-like is a new space that we had in the market, relocation and store expansion. This is 4% for the first half. This will increase in second half because we opened a lot of stores in the first half and even more store in the second half.
As you can see from both like-for-like and organic perspective, the sales growth have been good in all regions. So if you look at APAC is leading the way with a 24% growth in terms of organic, 15% in terms of like-for-like, followed by Europe. And Europe, we're already a big business. And this business is growing very fast with a double double, 19% growth in terms of organic, 12% in terms of like-for-like. North America, plus almost the same as Europe plus 14% organic, plus 8% like-for-like. And in U.K., which is -- this is our total U.K. as you see for JD, we do better than that, but it's a plus 5% and plus 4% like-for-like.
If you go to our P&L, and I think we can look at our P&L in more details. Revenue line, GBP 4.8 billion for the first half. And just to echo what Andy was saying, GBP 4.8 billion. This is more than our total year 2018 turnover. So it's not a long time ago. That was 5 years ago. That was our full year turnover. This is now our first half turnover. Give you us a magnitude of the growth that we have delivered and what we want to deliver for the future.
Margin, 48%. Last year was 48.5%. I think if you want to compare like-for-like, we should say 48.8% because there is 30 basis points, which is linked to the fact that we reclass the delivery income part of revenue versus part of netting the cost. So there is 80 points below last year, which is completely in line with our expectation and the fact that last year, we had no clearance at the end. We had no stock, especially in the U.S. So we are very comfortable for 48%. 48% is 1.5 points -- 1 point more than pre-pandemic level of margin for the first half. And if you look at our history, we always have a better margin in second half than first half. That has been consistent through the years, except doing the pandemic one. So that's for the margin.
We have, in this margin an increased shrinkage because that has been one of the questions asked. But this is really very small for us. We see an increase, but from a very low base. As you will see in our stores, the stock, which is the most valuable stock, which is around footwear is not on the sales floor. So the ability for the consumer to walk away with a pair of sneaker, they can have one pair -- or no, not one pair, one shoes, which is a demo shoes, but it's not going to impact us very -- and it doesn't look cool when you wear it. So we have less issue around that.
So that's only -- so the increase shrinkage is 6 basis points of margin in the first half, which is not really significant. In terms of our cost, up 10% which -- and that is 8.5% if you take like-for-like, if you take into account the reclassification of the delivery cost. That reflects the investment that Andy was mentioning. We have invested a lot in the first half and invest in our people.
First, as you know, in October last year, we decided to increase the sales assistant salary almost by 30% by removing the on the hedge policy. That is GBP 45 million investment in total for our staff that is reflecting in our P&L.
Second investment has been around acquisition. The cost of doing the acquisition of Courir, Conbipel, Gap that is around a GBP 10 million bill for the first half of one-offs that we have in our P&L. We have a successful effort to improve governance and strategy, which we have a of course -- some cost around that and infrastructure and IT. We are dual running of DCs. So we still have -- that is really protecting us from a big [bond].
So in U.K., as you know, we have opened Derby, which is our new warehouse completely automized for e-com, but that is still doing in Kingsway. We still are doing both in parallel. So we have the 2 costs. Same in Europe, we have Heerlen, which is our warehouse in Netherlands, we are starting to to implement all the automation and other staff. At the same moment, we are not using it. So we don't get the benefit. So we have the double running cost of that and that is significant for the first half.
On system, we have done a lot of investment around GBP 10 million around security because we had we wanted to make sure that we have the right level of security. So that's a GBP 10 million investment in cybersecurity. We have the cost of our new HR platform program and a new digital program.
So all that has been done at the same time that we have developed the business. If we look at PBT, I think that you see that it's down by GBP 10 million. At the same moment, if you look at before tax and the -- it's plus 26%, reflecting the fact that we have less a negligible impact of adjusted items for the year and you can see the dividend pressure. So this is a big test for [ pronunciation ] for a French guy. So we move from 13 to 30, hopefully, not the other way. But that's Pete trying to have this test for my [pronunciation skill]. So thank you for that, trying to pass it.
If you look in more details, and this is our premium sports fashion business, which is driving revenue growth. So this is the way we segment our activity. As you will see premium sport fashion, which is mainly JD, represents 75% of our turnover, 85% of our profit and all the growth in the first half. This is where we are investing. This is where we are focusing. And this is where the growth is coming and the profit is coming.
You can see we are not far away from a double-digit profit. It's down year-on-year, reflecting the investment that we have done in terms of our cost and at the same moment, the gross margin reduction.
In other retail fascia, we see some organic growth, but total growth is down because of the divestment of noncore business that we have done at the end of last year. Other business, you can see that the same -- that include our gym business, which is doing very well. It's going down in terms of sales because of the divestment. But at the same moment, profitability is going up, thanks to the gym business.
Our outdoor business has been flat in terms of sales, reflecting growth in terms of store sale and a decrease in terms of online sales. And in the period, we have some small one-off costs that have been taken, which means that we are a little bit below last year, but should be okay for the full year.
Now if we focus on the premium revenue growth in all regions, which is the one that is the most important for us in which we focus. So what you can see is that all regions are growing and are growing at pace. And you can see the difference between the different regions. The same U.K. is doing well. And I think that for a mature country, we are delivering 8% growth and 5% like-for-like.
You see Europe, in terms of EBIT, this reflects the investment that we have done because all the investment in infrastructure is through the U.K. P&L because the PLC is in U.K. That reflects the EBIT that is going down a little bit. Europe has been growing at 28% -- 27% organic growth and 15% like-for-like. North America, plus 15%, 9% like-for-like and APAC, 26% plus 15%.
So you see a very nice picture for our growth, and you see the 0 opening of new stores in the region. In terms of cash, you see the comparison between last year first half. So this is first half, first half comparison, we generate around GBP 200 million cash from the activity, up from GBP 67 million last year. Our net cash strengthened by almost GBP 300 million from GBP 1 billion last year to GBP 1.3 billion this year.
And on CapEx, you see that we are increasing our CapEx, and I will go in more details around our CapEx expenditure for the first half. So this is our first half expenditure of CapEx for the last 3 years. So you see the increase of CapEx, mainly around store and infrastructure. But store has been taking 50% of our investment, which is in line with our guidance we gave you during the CMD. So that's 50% of the -- of the CapEx going through store. 1/3 is going through a supply chain with mainly Europe, which is the Heerlen Project and North America, which is a warehouse that we are building on the West Coast. And System and other is the investment on cybersecurity and the investment in terms of our HR platform.
So that was a quick run through our financial. There is an Appendix 2, which will be on the website by now and which has a number of detailed financial slides to help you with the model.
Now before we move to the strategy update, there is a short video I wanted to share with you.
[Presentation]
I think the video do a better job than I do, but let's try to compete with the video. So the strategy as we cover in February of this year is to be -- and we are the leading global sports fashion powerhouse and retailer in the world. And with 4 pillars, JD Brand First, JD Complementary Concept, JD Beyond physical retail and JD Best for people, partners and community.
So we had this this ambitious program to open more than 200 stores, and we are delivering on it. So we will open more than 100 stores in the U.S., more than 100 stores in Europe and 25 stores across the rest of the world. And in U.S., we are opening in some of the best malls in the U.S.
So we have now opened in Aventura Mall, which is the #3 mall in the U.S. by traffic, in American Dream in New Jersey, which is the #2 mall in terms of traffic. So that has been part of the opening that we had. In Europe, a big push in Italy, thanks to the Conbipel acquisition, we opened 21 stores. And we continue to look at acquiring those fashion store from distressed retailer in order to accelerate our expansion in Europe and access to location near the fashion retailer. Like we have done with Gap store in France that we will open at the beginning of next year. In the rest of the world, we are continuing our successful store expansion in Australia, New Zealand and Southeast Asia. We will see some picture for Australia.
Our model is a winning one. And the overall return remains unchanged. We are -- all the projects that we approved are below 3 years payback. It's on average 2 years. And at the same time, if I look at the first half, we are delivering 30% more than the sales that we have in our [indiscernible] . So we are continuing to to have the same discipline and accelerating our development.
If I look at some of the store we open, we don't forget our home country. U.K., we opened our 400th store in Derby. It's our 100 store in retail parks that was opened in July. We have opened, as I said before, in Aventura Mall in Miami, Pitt Street has been our biggest opening ever in terms of sales for the first year -- for the first day. And Colombo Lisbon, we opened for the first time a big store. In Portugal, Colombo is the #1 mall and Colombo is the part of our top 10 stores in Europe, including U.K. as we speak. So great success.
You can see that look and feel and and the quality of the execution, it looks the same. There is a little bit of -- there is localization in terms of some product, but it looks the same. I think we are -- we show up the same way. We deliver the same quality all across the world. And that has been part of our success and the ability really to understand global trend and to deliver that to the consumer in a consistent way.
In terms of brand first, as mentioned by Andy, we have done the acquisition of the minority shareholders that we had in Europe. So we are now in a position to simplify the group and to make it and to be more relevant to our strategy to put JD first with in Iberia and Netherlands with the acquisition of ISRG. The acquisition of the remaining 40% in MIG in Eastern Europe and the acquisition of minority interest in Malaysia, Thailand and Singapore that give us more flexibility to accelerate in Thailand.
And we are open -- we have signed our first franchise agreement with GMG for the Middle East. So as we said during the CMD, we are looking at an asset-light model to develop in Africa, Middle East and Southeast Asia. We have -- we are very close to agreement in South Africa and some parts of Southeast Asia that we will -- I think we will update you as we speak.
So we are on track to open more than 200 stores across the globe, and we concur in new markets with no asset or asset-light model with franchise in the rest.
JD complementary concept, as we said during the CMD, we made this commitment to rationalize and focus our portfolio. And I think we are well underway around that. And at the same moment to continue to develop concept that we can leverage across the globe that we can use infrastructure and that could be complimentary to JD. So the first one has been the acquisition of Courir to really respond to this customer to this female customer. The female market is underserved in our industry, and we believe that with Courir, we have the right offer and the right concept to respond to. And that will give us the ability to leverage across the world with size? that we have -- the brand that we have in Eastern Europe and with Finish Line at Macy's in U.S. So we have the infrastructure to leverage and to make it a more global brand.
So where we are in the process, we had the approval from the work council. We are in the prenotification phase with the European Commission. We are actively answering, cooperating with them to answer the question around market definition. And we believe that this should be a Phase 1 filing, and we'll update you as when we appropriate, but it's likely to be beginning of next year and of this year at best.
We had a strong performance of our complementary brand in North America. DTLR on the east part, Shoe Palace on the West part. They've done a great performance. They contribute to our strong U.S. performance. So we are winning with JD, but we are winning not only with JD, we're winning JD and DTLR and Shoe Palace. And we see the potential of this community brand in the U.S. and the potential to consolidate this proposition across the U.S. So we are looking at the synergies, the ability to consolidate and to deliver a strong proposition around this community brand. And that is in line with JD development.
We have rationalized our Pinnacle offer. We have this very important for JD to have this offer with size? and Footpatrol that give us the ability to understand the trend. So Footpatrol and size? are trading very well. We merged all the street brands around [indiscernible] , and that is doing well. And we continue the divestment in the first half with some of the small business that we are going out of.
Physical -- beyond physical retail. I think it's about 3 things: the infrastructure in terms of supply chain, the IT and the royalty, how we communicate, how we create an ecosystem for our customer. First thing is our loyalty program. We commit to do that at the CMD. It's live in Manchester. I'm really happy that we are live in Manchester. So we have 10 stores on the trial. So this is going well. So this trial will end in October, where we will -- if everything goes well, we will be live for the U.K.
I think the trial has been really great for us to understand how we create this -- really this ecosystem, this super app for the young adults. And that's really the vision we have is to really use the power of attraction that we have to propose a more lifestyle experience to our customer. The first step is to build this loyalty app, which is done to reward the customer with a simple and compelling proposition, which is a 1% cash back and to grow from that the customer lifetime value to increase our share of valid and to deepen our customer relationship via partnership.
So we are really happy about the first element of engagement with the consumer. I think we see, in fact, uptake, which is higher than the one we were focusing, and we're looking forward to roll out in the U.K. later in this quarter and in Europe next year.
Investment in our technology, as I mentioned, the first thing was to put the house in order and the first priority was our cyber improvement program. To make sure that we have -- we have done the first phase, which is really to look at and to go after immediate weakness in our security architecture and reinforce our first line of defense. So that has been done. We have to spend a lot of money, as I said before, to do that.
We are now in the second phase, which is to become that as business as usual. We have a new CFO, which will start in October. It's a great person that will be able to go to the next phase, which is around being best of class in terms of security.
We continue to explore Omnichannel. We relaunched Click & Collect. We are doing a test in France as we speak to make sure that we have this offer for our customer as we have been developing our online presence more as a pure player than as an omnichannel experience.
And at the same time, we are replatforming our e-commerce. We start -- so we signed with [Commerce] tool for Europe. So we will have the same solution for U.S. and Europe, 2 instances, but the same solution. We are at 50% completion in U.S. of the replatforming of our -- with Commerce tool, and we start the journey in Europe. That at the same moment, it's not a big one is that we are taking some breaks out of what we do currently to replace it with Commerce tool, which is a better tool for the future.
Supply chain expansion. We have a clear vision where we want to be. One warehouse for U.K. because of Brexit, all our supply chain was based from U.K. in the past and that no more is the case. It creates more cost and more complexity today. So we will have one warehouse in U.K. for B2B and one warehouse for B2C with Derby, which is running. We are a 20% facility. We move to 24 hours a day and 7 days a week, 2 weeks ago, and we are ramping up and doing well. So I think that -- but we have the double running cost for the time being between Kingsway and Derby.
For Europe, Heerlen is our future facilities, the same. We already have a facility in Netherlands that is not big enough in order to handle the volume, but we are still running that. So for the moment, we are doing partly from this facility and partly from Kingsway for Europe, tomorrow Heerlen. So Heerlen, we are just -- as we speak, we are finalizing the equipment. We will have the first order delivered to Heerlen in October -- in December. And after that, we will start to ramp up but the same is not a big one. We still have Kingsway and the other facility that is able to cover the need if we need. So that means that we prefer to have the double cost than to have the risk of a [big one]. So that's part of the European P&L. And that is a major driver of the future profitability of Europe.
And we have in U.S. Morgan Hill, which is on the West Coast. For the moment, our supply chain is East Coast driven with Indianapolis being the major warehouse that we are using. So having a West Coast warehouse would give us the ability to stop to do something which is stupid that the goods is arriving in LA, go to Indianapolis and go back to the West Coast, which doesn't really make sense. It's create cost -- but that's the same. We are looking at 2025 to be full capacity with Morgan Hill.
So that is for our investment in technology. In terms of our people, partners and committee, the first thing is that our commitment to our people. Yes, we have invested a lot, and you have seen that in the P&L for U.K. We see the cost of increasing the sales of our sales associates, but I think it was the worst investment. Our turnover is down 50%, divided by 2, thanks to that. So we have done the right things for our people, and I think the right thing for the society by investing GBP 45 million. This will annualize in October this year.
We have a new CFO, as mentioned by Andy, we have now a global leadership team that is full. Full -- not sure it's the right word, but it's old position are there with a new CFO, which is Dominic Platt that will join on 4th of October, a new CTO was that will join us mid-October too. And we are building a new HR global platform that give us the ability to more leverage our people across the world. I went too fast.
Best for partner. I'm -- I believe -- I strongly believe that we are Nike #1 partner in the world. So that's new because it was not the case one year ago. So we are the key global partner for Nike in [indiscernible] development. We are the largest global partner for Adidas for Original and for the terrace style, and that has given us a big competitive advantage on the market. And we are developing a partnership with a fast-growing brand, which is on Asics new balance. Hoka in Europe, will the first one, you will see that Hoka being in 10 of our stores in the U.K. already.
Commitment to our community. We invest in our community. The biggest investment we are doing is to give job to our people. Our people are the same as our customer, and I think that they recognize that and that creates the attraction for the concept and for us. We -- we have a foundation that is part -- that is really about changing life of the young people, giving them opportunity to do best that they can do in life and that is where we are investing. And we improve our sustainability. I think we continue to be committed to our sustainability agenda. We believe in it.
We believe long term. We are A- for the climate change organization, which is several points ahead of all our retailer in that. And we have made a huge investment in terms of solar panel, all our energies come from renewal of sources in Europe and in U.K.
And just to come back to the beginning. I think that we have -- it's a very solid and very good first half, double-digit growth, double-digit market share double-digit profit. I think we can see doing well on all the key element of that. We're investing a lot of money. And I think that we feel proud of that, building the infrastructure for the future and we continue to see U.S. as a key market for us and doing well in the U.S. despite everything that has been said. I wouldn't do no more in the U.S. now, what you think.
And so let's go to the Q&A. So -- so Pete Fox will be here if you have some very precise question, but we are recording this and there are mic in the room. So please, yes, please do that. To get the mic and we'll be happy to -- to answer your question, yes, and I will stop to talk.
Richard Chamberlain in RBC. Maybe I can just kick off with a couple of questions. You just spoke about the dual running costs going on in the U.K. and so on and then presumably overlapping into Europe. Can you sort of quantify how much those are and when we'd expect those to ease off? And then the second one is outdoor. I know it's a much smaller business. But how core is that to JD these days? Is there still significant synergy? And I know it's obviously brought North Face and so on in the past. But is there a significant synergy now between outdoor and premium sports fashion? Or should we think of outdoors as sort of noncore for JD?
Yes. So I think outdoor is part of, as you say, it does create a lot of value for us in terms of getting some outdoor brand. And I think that is part of what we have. It's not strategic, but it's not out of scope. So I think that for us, it's something that we continue to develop. We can see that some things, we can do better in terms of rationalizing our portfolio of brands, and I think that we are looking at that and expanding our offer for the consumer. So we are really -- we think it's a good business, and it's a business we want to be in, but that's where we are. In terms of one-off -- and it's always complicated to say what is recurring and not recurring. But I will say if you take the first half, there is GBP 40 million of cost, which are some recurring, some not and some one-offs, some not. So that's the magnitude of what is. To give a precise timing, it's not possible. What we don't want is to take the risk. So I think that what you need to understand is that you have the risk to go quick and to say, I close a warehouse, I build a new one. That's not what we're doing. We are too big to do that, and we don't believe it's the right thing to do. So we prefer to get GBP 10 million, GBP 15 million more cost for 6 months or 12 months and having the security of doing that in a proper manner. That's the type of magnitude. But I think that the biggest one is the cost benefit of having a warehouse in Europe, which will make the profitability of Europe much more in line with the U.S. one compared to what it is today. And today, it's quite far away. And I think that it impacted even negatively because we have a lot of opening the Conbipel one, which is a lot of preopening costs because we pay the rent for the Gap store and the Conbipel store for nothing, for no activity. So that will improve a lot Europe. European profitability should be in line with the U.S. one. There is no reason perhaps 1 or 2-point difference because of staff costs, but there is no reason why Europe lag behind like it is today.
David Roux from Bank of America. Just a couple of questions from my side. It's -- it's been about a year since you launched the Digital Connect partnership with Nike. Could you perhaps just give us your observations and how this has helped the business? And then secondly, just going back to the noncore business disposals. Could you tell us -- give us an update as to what value of businesses have been disposed already? And how much more is there potentially to come?
So on the noncore, Pete is a specialist of noncore.
Yes. So I mean, clearly not a significant part of the group, but roughly about GBP 450 million of turnover that's come out year-on-year as a result of divested businesses. There are still some businesses that will be divested and you'll see those in our interim statement as held for sale. But again, in the scheme of the overall group kind of not huge.
And concerning Connected, I think the major benefit of Connected for us is to work more closely with Nike in terms of system. Putting the system together, understand how we can leverage value together, how we can understand customers. So it has been a great journey working with Nike, really putting the 2 company in a very close relationship and sharing a lot of information and way of looking at things. So that's has been really the big benefit for the time being. This will accelerate with the loyalty program because that will give us another tool to understand what's happening in store. For the moment, we only have the ability to open -- to understand what's happening online. Tomorrow with the loyalty program, we will have the ability to understand what's happening. So great journey. It's a fantastic partnership. I think that we have we learn to work together and to work in a very nice way and a very profitable way for both company.
Kate Calvert from Investech. A question on Shoe Palace and DTLR. Could you give some more color around the main drivers of performance because I would have thought that the demographics might be slightly more impacted by the economy? And then the second question is on your 200-plus store openings. Could you say how many of those are going to be conversions from Finish Line? And are there going to be any franchise openings do you think you might get one of those in before the end of the year?
Yes. Conversion, I don't -- top of mind.
So about 60 out of the 100.
Of the U.S.?
We'd expect to be conversions.
And no franchise in it. DTLR, Shoe Palace. I think that what is driving that is really benefiting from the synergy with the group. And I think that if you look at Shoe Palace, most of a significant part of the growth come from the conversion and we have implemented our and health device, the way we process with consumer. We share the information. They were very Nike dependent. They are now getting a better share of New Balance of on. So I think that they are, by working with us, and this is where we believe that there is opportunity in complementary brand. We are leveraging what they are with a great retailer, a great understanding of their customer base, and we give them some process that we have, which are really -- we are monitoring the time it takes for you to get the shoes when you are in front of the display and you say, "I want this shoes." We are monitoring that. And we are putting a lot of process behind the scene in order to get the shoes quicker as possible. And that's something which makes a big difference in conversion rate. It's something as simple as that, but sometimes retail is simple. And when you start to complex, you start to lose your your way. And that's one of the things we give then technology to them to assessment to say, "Oh, I don't have this pair, but I have this pair. I have thjs pair in another store." And we have seen an increased conversion in both cases. So I think that -- and plus, they are working together. DTLR is a great retailer in terms of apparel, less so in term of footwear and the opposite for Shoe Palace. So I think it's really the benefit of working in [indiscernible] where they get the trend and trend not only in the U.S. So they get a little bit larger view around the world and I think that it's helping them to see what's happening and better process and more synergy between the 2 brands.
Jonathan Pritichard at Peel Hunt. Two for me, if I may. On apparel in the states, I think it's now in the 20s as part of the mix. How do you sort of kick on again from there to get towards the sort of Europe, sort of U.K. level? I know that, obviously, with badge flips that will increase the percentage, but how do you continue to move that power percentage forward? And then secondly, how many discussions or how top of mind have share buybacks been?
Okay. So share buyback, I think it's not top of mind, and I think it's something that we will ask Dominic to review when he joined and with a strategy around what we do with our cash. But I think that is definitively the last things on the list. So I think the first, we always say is about investment in our stores. Second is about acquisition. And after that, if we have time, we will do something around the dividend and share buybacks. So I think that there is no program and there is no discussion around that for the time being. And I made the mistake last time, so I will not make it again to start to discuss about that, and you start to be very excited. We -- so I will not make it again. After that, the Board will be crossed with me. So I will not do it again. On the first one, on the apparel, you're right, we are increasing. Still far away from where we want to be. I think that, as you mentioned, it's 50% of our mix in U.K., 40% in Europe, and it's 25% in the U.S. And I think we -- partly, you're right, it's a batch fleet and partly is having better product and better range. I think it's building our expertise. We have someone as the lead buyer from Apparel in U.K. moved to Indianapolis to continue to share our expertise, to share our knowledge, our way of doing things. So it's about learning. It's a learning curve. We didn't get -- in U.K., we start 100% footwear, and we are now 50%-50%. So it's just a question of time. The good thing is that by having the expertise across the world, in Australia, we are 50%-50%. So we are able to move people with the expertise. We are able to leapfrog the time it will take if it's a normal development. So -- we have -- the good thing is that contrary to our main competitor, we have the space. So it's not a question of space. Now it's a question of having the right product, the right expertise to deliver the growth.
Eleonora Dani from Shore Capital. Three for me, if it's okay. So there is an impressive 20% uplift in sales when you convert store to the JD [indiscernible] . Could you remind us of the key drivers of that? Secondly, with the acquisition of the rest of the Iberian business, what are you looking to do differently compared to what you're already doing in the region on top of more comparisons to JD presumably? And there is a mentioned statement of a selective growth opportunity in the U.K. Could you maybe provide some color on what those are?
So conversion, yes, we still see 20 even more than that. I think the main driver for me is it's a new store, a new proposition. You get more excitement. I think the other thing is around -- so that's brand things. The fact that the mix is different. We have more apparels and we create more traffic. So -- but I think the main element is the modernity of the concept and the quality of the execution. I think that's where we see the benefit. In terms of the minority, I think that -- first, I think it simplifies the group. I think it was complicated, and I'm not sure we will -- we really have been able to implement our strategy by 50-50 because there's someone else who have a different view on the strategy. So it gives us the ability to accelerate JD development. And that's really what we are looking is how we leverage those business where we have started to develop JD, but I don't think we put all our resources and -- our resources and our priority around developing JD because they had another business, and they try to do a little bit of the 2. What we will have a clear view, which is JD first. If I take Portugal, for example, we know that we are in the space and Colombo has been a great wake-up call for us, where our store Portugal is at 150 square meters. They're really timely. They're doing well. But we know that the best proposition for JD is a 400, 500 square meter. And for the moment, we have not find those stores. I think there is a way to accelerate that by leveraging what we have. So I think this is about really leveraging and making sure that JD First strategy is implemented in those areas. On U.K., I think that U.K. growing. You see the numbers. And I think that we are expanding the store size. And every time we do that, sales per square foot go up. So we still have this really fantastic challenge. We see where is the maximum. So we are trying to get there, and we're still not there. So hopefully, in Trafford where we will open a 100 shop window, and I don't remember the size of the store, but it's a Mammut store. We see perhaps starting to see a return on Spain diminishing. But for the moment, we are not seeing that.
Warwick Okines from BNP Paribas Exane. Two questions about the U.S., please. The first is just could you give us a bit more insight into how you've traded what's obviously been a very promotional industry in the U.S. and tactically, how you approached the U.S? And secondly, perhaps for Pete, could you tell us what weeks cover you have of inventory in the U.S. and how that compares with your European business?
Sure. So I mean, overall in the U.S., our stocks are a higher one year-on-year at the end of July and that really reflects the kind of the anomaly, if you like, of the prior year, where we were kind of under stocked kind of running up to July. So stock cover has increased. It is elevated relative to the U.K., but not by a significant extent. And I suppose the thing to bear in mind with the U.S., when we're talking about kind of 100 new stores for the second half -- for the year as a whole, a lot of which is weighted towards the second half. Obviously, we've got stock that's in the business kind of ready for those new stores.
Yes. And I think that in the U.S., what happened, as you have seen we said, is June, we have been has been not a great month, which is a month where all our competitors went on discount, and we just didn't have the stock, and we follow what happened in the market. We are certainly the best retailer out there in terms of the difference between intake margin and gross margin because we don't discount. That's not what we do, and we tend to be clean at the end of the season. That's what happened in the U.S. in June. That's why we have a blip of sales in June. And when the new season come and start in July, you have seen some of our competitors in July was difficult. July was a very good month for us because we have new stock and and it was a full price month. So yes, we will be always better when it's not around promotion and we are not a promotional retailer. But at the same moment, if we need to follow, we will follow. That's not something we will not do. But for the time being, our stock position is a good -- it's in a good -- it's where we want to be. In fact, I spend a lot of energy to get enough Air Force 1 in our stores. So monitoring store by store and to make sure because we were losing sales, especially in June, we had no Air Force 1, Triple White in our store, which is a better line. So we have been clear, and I think we get the commitment from Nike to make sure that we will never be out of stock for Air Force1, Triple White and Triple Black in our store. And that's something where we are monitoring that week by week. So I would say, in U.S., more I'm more stressed about not having enough stocks than having too much stock because the way it happened in the market is that they look at us and they don't see how much growth we are delivering. So they see the rest not doing well. So they just manufacture -- just be a little bit surprised to get so much order. So they say, that's perhaps too much. We keep running out of our stock for the time being which is a good problem to have.
Just a couple of quick follow-ups. Last year was all about footwear, while apparel was pretty weak -- have you seen any distinctive trends this year between the 2 sides of your business? And obviously, on minorities, you've now bought out virtually all of the minorities with the principal exception being that of the [indiscernible] . Is there any likelihood that you'll come to an agreement there? Or should we just wait for those call options to roll through as scheduled?
Yes. So good question. I think I don't remember last year have been really dreadfully but apparel is more volatile because the weather has an impact, whereas in footwear, it doesn't. So the good thing about having footwear and apparel when it was summer -- summer in U.K. was in June and September. There was no summer in between. But when we had this fantastic weather, we did very well in footwear, and we sold short and T-Shirt and not a big piece. So I think that for me, apparel will have always more story than footwear, which is a steady business and with no impact of the weather or no significant impact. And the same for outdoor. Lee is running our outdoor business. I'm calling you [ Mr. Mete ] because he's always coming at the trading call and saying it was city weather okay. Can you give me something else on the weather. But if you need the weather, he is the guy for you. But -- so I think footwear has been doing better this year, a little bit better than apparel, but mainly because of this peak and all that stuff. But in total, our mix is not moving significantly. Concerning the minority shareholder, you read the last one and the big one is a U.S. one. I think that the [indiscernible] that they want to continue in the way we are doing things. I think that we are not in a hurry. I think we have an agreement that is in place. And that, as you say, which is 2025 and in full tranche. I think that that's the likely outcome of that.
I think it's true. I mean we're very close to [indiscernible] . We've got a very good relationship with them. Regis expanded George's kind of remit by giving them the community brands to run so he's got DTLR and so on. So I think he's very happy in terms of the day-to-day life. And it's a very good relationship at the moment. So the shareholder agreements contain plenty of clauses to play out over time if they need it. But at the moment, it's a very happy consistence really. No. But I think having them in a positive and operate in Shoe Palace and is good. And as you've seen with Iberia, which is less in 12 years, happy relationship. These things have a life. And at the moment, the life with [indiscernible] is a very happy coexistence. At some point, they may want to go out at some point we want to buy them out. But at the moment, it's a very steady state.
Alison Lygo from Numis. Can I just ask a quick question on kind of CapEx and sort of balance of the year in terms of investments of 210 or so in the first half versus the guidance of [indiscernible] for the full year. Take that store kind of openings are more weighted towards the second half. Is that still kind of level of CapEx guidance you're expecting? Or is there a chance it might be kind of bottom end of the range or sort of below? I guess within that, is the question in terms of how you're feeling about that kind of store opening?
We are on track. I think that we will open 200-plus stores. So I think that is nothing that says that it will be different and we will spend the money.
It's one of the great mysteries of life why, every retailer new space is always back ended. I never really understood it.
In our case, I think it's because we accelerated a little bit after the CMD. So hopefully, financially frankly, it will be much better to do first half than second half. So financially, it's a wrong decision, but we are for the midterm and long term. But financially, there is all reason to postpone and to open more in the first quarter than in the last quarter.
Good. I think we're there. So thank you very much indeed for all the questions. That was a the long list. And yes, we wish you well, and thanks to Regis for the first half and good luck for the second.
Thank you.
Thank you.