JD Sports Fashion Plc, parent company of the JD, Finish Line, Shoe Palace and DTLR retail nameplates in the U.S., along with many others across Europe, reported its full year results for the 52-week period ended January 28, 2023. The company said the year was the first time since 2019 that all of their businesses traded free from COVID-19 related restrictions, which had a clear positive effect on revenues in many countries, particularly in Europe. Still, revenues in the U.S. were said to be depressed in the first half of the fiscal year as a result of reduced availability of certain key footwear styles.
Total revenue for the Group for the 52-week period increased 12 percent for organic sales at constant-currency rates to £10.13 billion from £8.56 billion in the prior year.
North America
JD said that the last fiscal year was very much a year of “two halves” with the performance in the first half, particularly the first quarter, negatively impacted by the well-publicized international supply chain challenges which resulted in the reduced availability of certain key footwear styles. These supply chain challenges were reportedly felt “most acutely” in North America, particularly in the first half, as footwear represents more than 80 percent of total sales which is the highest proportion of any of the company’s markets. JD said they are very encouraged by the fact that trading improved rapidly through the second half as the availability recovered and so, over the full period, there was 5 percent growth in organic sales at constant exchange rates compared to the prior year. The company said North America remains their most significant market in premium Sports Fashion in terms of revenues.
In the Sports Fashion segment, sales in North America under what JD defines as “Premium” retail brand nameplates, organic sales at constant exchange rates increased 5 percent to £2.85 billion in fiscal 2023. Sales in the “Other” retail brand nameplates were flat at £281 million.
Profitability was largely maintained at the prior year levels with the Premium Sports Fashion businesses delivering a profit before tax and adjusted items (excluding IP charges) of £317.1 million for the year compared to £322.2 million in fiscal 2022.
The roll-out of the JD retail brand was said to continue at pace with 138 stores trading as JD at year-end, up from 89 stores in the prior year-end, which includes 10 stores in Canada in this past year-end from 2 stores in the prior year-end. There are also two stores trading as Size? In Canada. The net 41 new stores for JD in the U.S. in the period included 24 locations where Finish Line previously operated with 15 direct conversions of the same space and a further nine stores relocated to facilitate JD opening in a site which is either more appropriately sized or is in a location which attracts higher levels of foot traffic. In addition, JD opened its second flagship store in the U.S. with a store on State Street in Chicago.
Looking ahead, it is the company’s intention to accelerate the roll out of the JD retail brand in North America with a target to deliver an additional 500 to 600 JD stores over the next five years. These new stores will come from both new stores and the conversion of the remaining standalone Finish Line stores that had 392 stores trading under this banner at fiscal year-end, down from 427 stores at fiscal 2022 year-end.
The Shoe Palace and DTLR businesses also reportedly continue to make progress in their markets with seven new Shoe Palace stores and a net two new DTLR stores opened in the period. These retail brands “continue to perform an important complementary role with their focus on consumers that are more neighborhood based,” according to JD.
Elsewhere, JD said it remains their intention to retain the Finish Line name as a concession in the Macy’s department stores with a product offering which is more focused on families. As with their Premium businesses, there were short term trading challenges in the first half of the period at Macy’s but the performance improved through the second half. Ultimately, as with the Premium retail brands, profitability was largely maintained with the Macy’s concessions delivering a profit before tax and adjusted items of £44.7 million in fiscal 2023 compared to £45.4 million in fiscal 2022.
JD said the terms of their contract with Macy’s permits them to close a number of the concessions each year, but their enhanced confidence in this part of the business is reflected by the fact that the number of concession that they operate has been maintained at 289 stores with two openings and two closures.
JD said their North America businesses continue to make progress on a number of infrastructure projects which will enhance both their collective operational effectiveness and the consumer experience. This includes a project to install automation equipment at Shoe Palace’s new 512,000 sf warehouse facility in Morgan Hill, CA. They anticipate that this project will cost approximately $70 million with a planned go live in early 2025.
U.K. and Republic of Ireland
JD posted another robust performance in the Premium Sports Fashion retail brands in the U.K. and Republic of Ireland which delivered a profit before tax and adjusted items (excluding IP charges) of £356.2 million in fiscal 2023, compared to £386.4 million in fiscal 2022. The period’s result includes a full annual charge for business rates whereas, in the prior year, business rates were only fully payable from July when the U.K. Government withdrew its COVID-19 related rates relief support program. This performance was said to be underpinned by resilient consumer demand with 12 percent growth in organic sales at constant exchange rates to £2.60 billion compared to the prior year, with revenue growth accelerating through the second half of the period.
The U.K. and Republic of Ireland were said to be the most mature market for the JD and Size? retail brands with developments such as the new flagship store at the Metrocentre in Newcastle and a relocation at Fosse Park in Leicester, which is one of the biggest out of town retail parks in the U.K., demonstrating the company’s ongoing commitment to continue raising standards in the retail of Premium Sports Fashion product ranges. The U.K. and Republic of Ireland is also the market where the JD and Size? retail brands have the greatest density of stores relative to the population with 444 stores at fiscal year-end.
The non-core branded Sports Fashion businesses including Tessuti, Giulio and Mainline Menswear delivered a total profit before tax and adjusted items* of £19.7 million which included £7.0 million from the businesses which have now been divested (including Footasylum). Revenue grew 5 percent growth in organic sales at constant exchange rates to £520 million.
The proportion of online orders for U.K. customers that are being fulfilled from the 515,000 sf facility in Derby continues to increase with this site expected to fulfill the majority of U.K. online orders by the time of the peak period later in the year. Approximately £65 million has been invested at this site to date, of which £55 million was incurred in the fiscal year, with the full cost of this initial development expected to rise to approximately £70 million by the middle of 2023.
JD expects to have exited the temporary e-fulfillment facility at Sherburn, Leeds, which was operated by Clipper Logistics Plc, by the end of Summer 2023.
Europe
JD also saw upside in their Premium Sports Fashion businesses in Europe with the combined businesses delivering a profit before tax and adjusted items (excluding IP charges) of £92.6 million versus £29.2 million in fiscal 2022. They said the stores being open for the full period has been very beneficial in driving an improved performance with 34 percent year-over-year growth in organic sales at constant exchange rates to £1.39 billion.
The performance of JD in Europe was said to have also benefitted from actions that the company has taken to enhance their service proposition. This includes investing in local logistics capabilities with the Group expanding its warehouse footprint in Southern Belgium and Northern France. Longer term, the Group has now taken possession of the 620,000 sf facility in Heerlen with initial fitting out of the site ongoing. Fulfillment to stores from this facility is still expected to commence in the first half of 2024.
JD said they firmly believe in the long-term opportunity for JD in Europe and remain committed to expanding their physical retail presence in all markets at pace. A net 58 new JD stores opened in the period across the continent which included the conversion of 23 stores which formerly traded as Chausport in France. Working in conjunction with the MIG team, there were 12 new stores in Eastern Europe, including the first JD stores in Hungary and Lithuania. Further, working with the Cosmos team, the Group opened its first JD store in Greece in the period with a second store in Greece and their first store in Cyprus also opened by this team in the new financial period. The JD team in Europe is also managing the joint venture in Israel with six stores opened in the period and one further store opened to date in the new financial period.
The Other retail brands, which include businesses focused on the Sporting Goods market, continue to adapt their businesses as appropriate for their markets with a net 10 new stores for the combined Sprinter and Sport Zone businesses in Iberia and a net nine new Cosmos stores across Greece and Cyprus. The MIG team in Eastern Europe opened their first Sizeer stores in Bosnia, Croatia, Serbia and Slovenia although these were offset by closures of both Sizeer stores and the lower price point 50 Style stores in other markets, particularly Poland. There were also a net 12 closures for the Perry Sport and Aktiesport businesses in the Netherlands. These businesses also benefitted from the stores being open for the full period with the profit before tax and adjusted items* increasing to £60.8 million in fiscal 2023 from £51.3 million in fiscal 2022.
JD also recently entered into exclusive negotiations on the potential acquisition of the Courir business in Europe (see article here). Based in Paris, the business has 313 stores across six countries in Europe. Courir reportedly operates a differentiated proposition to JD with its product mix, brand strategies and store designs directed more towards female consumers. In this regard, the company believes it perfectly complements JD and is capable of being rolled out internationally alongside JD. The acquisition is expected to formally close later in the year after a mandatory consultation process with the Courir works council and an anti-trust review. In addition, JD has also been successful in their bid to acquire nine stores in France which are currently operating as Gap stores. These stores, which will all be converted to JD, are expected to “significantly enhance” the JD presence in key city center locations, particularly in Paris.
Initial fitting out of the 620,000 sf facility in Heerlen, South-East Netherlands, has now commenced after the site was formally handed over in March 2023. This was later than originally anticipated and so the CapEx incurred at year-end was only €5 million. JD still expects that the total cost over the life of the project to bring the site into full operational use will be approximately €95 million with the shipping of products to stores expected to commence in the first half of 2024 to be followed by the fulfillment of online orders later in that year.
In the meantime, JD has expanded their base of smaller facilities in Southern Belgium and Northern France so that they can further increase the amount of product which is fulfilled locally for JD in Western Europe. Currently, more than 60 percent of deliveries to JD stores and 40 percent of online orders from JD customers in Western Europe are being fulfilled out of these facilities with the rest processed from the U.K.
Elsewhere in Europe, the shipping of product to JD stores in Eastern Europe and Greece is integrated into the infrastructures of MIG and Cosmos respectively. The majority of JD online orders in these markets are also fulfilled locally.
Asia Pacific
The Group said they continue to make good progress in the Asia Pacific region with the Premium Sports Fashion businesses delivering a profit before tax and adjusted items (excluding IP charges) of £61.7 million for the year from £36.6 million in fiscal 2022 with 36 percent year-over-year growth in organic sales at constant exchange rates to £431 million.
The company said the principal reason for the strength of the performance is a “continued excellent performance” in Australia where they have opened an additional seven stores in the period bringing the total at the end of the period to 47 stores. The management team in Australia is also responsible for JD operations in New Zealand where they have made “a very encouraging start” with three stores now trading.
Other Asia Pacific markets, particularly Malaysia and Thailand have reportedly seen a strong recovery with foot traffic progressively returning to pre COVID-19 levels after three years of trading restrictions. JD reported that they decided to exit South Korea as a market, with a wind-down of operations ongoing. The onset of COVID-19 three years ago and the subsequent loss of tourism into the country had a very detrimental impact on JD’s development there and, while the challenges of COVID-19 continue to ease, this particular market was slower to recover than other countries in the region.
Working with joint venture partner, PT Erajaya Swasembada Tb, there were seven stores operating in Indonesia at the end of the year with one further opening to date in the new financial period.
Outdoor
The year was said to have been another period of revenue growth in JD’s Outdoor businesses with 4 percent growth in organic sales at constant exchange rates to £564 million. The company said while it is clear that international travel has now fully reopened, spending time outdoors remains popular with people appreciating the physical and mental health benefits that it provides. JD’s Outdoor businesses saw strong demand throughout the year for activity-based categories such as fishing, cycling and camping. Still, the exceptionally dry and warm weather in the U.K. through the key summer period apparently depressed the sale of the higher margin apparel and footwear ranges.
JD said they continue to invest in all of their Outdoor retail brands with the store developments in the period including new Go Outdoors stores in Bury and Launceston and the relocation of their stores in Swindon, Gateshead and Derby. They have also extended their trial of Go Outdoors on the High Street with the conversion of an additional 13 stores which previously traded as either Blacks or Millets. In addition, JD said they have enhanced Go Outdoors’ position as an authoritative nationwide retailer in the key activity-based categories of cycling, fishing and equestrian with two new Wheelbase cycling concessions in the stores at Coventry and Stockton to complement the Fishing Republic concessions which are now in more than 50 stores and the Naylors Equestrian concessions which are now in seven stores.
Total Group gross margin for the period declined 130 basis points to 47.8 percent of sales from 49.1 percent in the prior year. JD said the return to normalized stock levels in North America through the second half of the year led to the return of some promotional activity “consistent with expectations.” Gross margins were said to be ahead of the levels prior to the pandemic (47.0 percent of sales in fiscal 2020) which was said to be a fair reflection of the underlying progress that the Group has made on managing the overall levels of markdown and promotional activity across their global businesses.
Profit before tax and adjusted items was up 5 percent year-over-year to £991.4 million, or 9.8 percent of sales, from £947.2 million, or 11.1 percent of sales, in the prior year. JD said the result was a record for the Group, pointing to “a particularly strong performance through the second half of the year as the supply of key footwear styles normalized.” The profit before tax and adjusted items margin, while lower than the prior year, was said to be more representative of what the Group would expect to deliver in a normalized trading environment “free from government fiscal support and other interventions.” They said it is also consistent with the targets that were set out in their recent Capital Markets Event.
As a result of the increase in the adjusted items to £550.5 million in fiscal 2023 from £292.5 million in fiscal 2022, the Group profit before tax decreased to £440.9 million from £654.7 million in the prior year.
JD said they were particularly encouraged with the performance of their premium Sports Fashion retail brands in North America where, notwithstanding the trading challenges in the first half of the year, the profitability has largely been maintained at the prior year levels with these businesses delivering a profit before tax and adjusted items (excluding IP charges) of £317.1 million in fiscal 2023 versus £322.2 million in fiscal 2022.
After recognizing intergroup recharges for the use of the JD intellectual property of £23.7 million in fiscal 2023 and £24.6 million in fiscal 2022 and adjusted items of £303.9 million for the year and £239.7 million in the prior year, which principally relates to a non-cash movement in the present value of future put and call options held with the minority shareholders of Genesis Topco Inc (the intermediate holding company for the JD businesses in the U.S.), the loss before tax in the premium Sports Fashion retail brands in North America was £10.5 million in fiscal 2023 compared to a profit before tax £57.9 million in fiscal 2022.
The company was also encouraged by the post-pandemic recovery of their premium Sports Fashion retail brands in Europe which delivered a profit before tax and adjusted items (excluding IP charges) of £92.6 million for the year, compared to £29.2 million in the prior year. After recognizing intergroup recharges for the use of the JD intellectual property of £51.6 million in fiscal 2023 and £20.6 million in fiscal 2022 and a credit for adjusted items of £0.3 million in fiscal 2023 and a credit of £1.1 million in fiscal 2022, the profit before tax in the premium Sports Fashion retail brands in Europe was £41.3 million in fiscal 2023 compared to £9.7 million in fiscal 2022.
Total operating costs in the full-year period before adjusted items were £3.81 billion, which represented 37.7 percent of revenue in fiscal 2023, compared to £3.22 billion, or 37.6 percent of revenue, in fiscal 2022, with the increase in costs reflecting the end of the support programs that various governments put in place to support corporates through the COVID-19 pandemic.
Basic earnings per ordinary share decreased to 2.76p in fiscal 2023 from 7.17p in fiscal 2022 consistent with the reduction in the Group profit before tax. The adjusted earnings per ordinary share increased to 13.39p in fiscal 2023 from 12.84p in fiscal 2022.
Outlook
Looking ahead, the Group said it is reassured with trading to-date in the current trading period with growth of more than 15 percent in organic sales at constant exchange rates after 13 weeks. They said the performance is further evidence that consumers worldwide are more attracted than ever to “JD’s differentiated proposition with its attention-grabbing in-store experience, breadth in the range of brands and availability of key styles.”
Still, the company remains conscious of the headwinds, including “the general global macro-economic and geopolitical situation.” Against this backdrop, assuming current exchange rates, JD expects that the Group’s headline profit before tax and adjusted items for the 53-week period ending February 3, 2024 will be in line with the current average consensus expectations of £1.03 billion.
