Sports Direct International Plc reported lower pre-tax profit for the first half of the year ended Oct. 25, hurt by lower gross margins and finance income compared to last year, despite a more than 10% increase in revenues.
The U.K. sporting goods chain anticipates full-year underlying earnings before interest, taxes, depreciation and amortization of at least £155 million pounds ($252 million), CEO Dave Forsey said in a statement today. In October, Sports Direct said profit on that basis would be at least £150 million pounds, after a July forecast of £140 million pounds.
The company also reported progress on cutting net debt to £362.0m from £431.3m at the end of April and said that would remain a priority and so no interim dividend would be paid.
Forsey said in the statement, “We are pleased with our performance in the first half of this year, when conditions remained challenging. We achieved this result through offering our customers the best products at the best prices, controlling costs and reducing debt. Although the operating environment is likely to remain difficult; we have motivated colleagues, a fantastic unrivalled range of products for our customers, and the World Cup to look forward to. On that basis, and assuming stable exchange rates, we are confident in the full year outlook for the Group and expect to achieve underlying EBITDA, of at least £155 million this financial year.”
The company's pre-tax profit in the half of the year ended Oct. 25, 2009 declined to £57.81 million from £97.67 million. Underlying profit before tax rose to £71.9 million from last year's £51.8 million.
First-half profit attributable to equity holders of the Group declined to £38.93 million or 6.46 pence per share from £5.75 million or 11.57 pence per share in the prior year.
Underlying profit was £48.45 million or 8.03 pence per share, higher than £32.74 million or 5.76 pence per share reported a year ago. Underlying EBITDA for the period increased 10.4% to £99.1 million from £89.8 million.
Revenue increased to £756.90 million from £687.75 million in the prior year. Operating profit advanced to £31.41 million from £20.53 million.
Meanwhile, group gross margin decreased by 270 basis points to 40.7% from 43.4% in the previous year, as UK retail gross margin shrinked due to ongoing foreign exchange pressures. Cost of sales rose to £448.56 million from £389.16 million in the past year. The foreign exchange loss for the half year was £15.4 million, compared to £45.4 million gain last year.
Total retail revenue grew to £661.8 million from £569.8 million in the prior year. UK retail revenue rose to £586.0 million from £510.1 million in the previous year, owing to the company's retail and logistic skills. International retail revenue was up 22.8% to £63.6 million from last year's £51.8 million, benefiting from both a strong underlying performance and the euro/sterling exchange rate movement in the period.
Revenue from Brands division declined to £95.1 million from £117.9 million, driven by the expected decline in wholesale revenues, as Sports Direct is trying to turn its focus to higher-margin licensing in this division. Revenues in the segment were also hurt by the company's decision to cancel one Everlast license and a retail competitor's decision to cease selling the company's brands.
Finance income declined to £29.68 million from £90.04 million in the previous year, mainly due to lower fair value adjustment to forward foreign exchange contracts. Finance costs reduced to £6.08 million from £15.76 million in the prior year.
Net debt reduced to £362.0 million from £431.3 million at the end of April 26.
