JD Sports Fashion Plc reported revenue reached £809.9 million in the six months ended Aug. 1, up 21 percent from the year earlier period as same-store sales across all its banners, including those in Europe, increased by more than 10 percent.
The UK-based retailing group reported total gross margin reached 47.4 percent, down 50 basis points due to a lower margin in JD's euro denominated business. The overall margin improved slightly at its Outdoor segment, but progress was limited by the need to clear autumn/winter stocks in the first quarter.
Operating Profit
Operating profit (before exceptional items) for the period increased by 80 percent to £47.6 million following an exceptional performance at the company's Sports Fashion banners and an encouraging reduction in losses at the Outdoor segment. The company expects further progress in Outdoor in the second half.
There were net exceptional charges of £1.9 million in the period, including £1.6 million was non-cash relating to increases in provisions for onerous property leases and impairments of assets in underperforming stores. That compared with £1.4 million and £1.8 million in the same period a year ago.
Sports Fashion hits stride
Sports Fashion operating profits (before exceptional items) increased by 62 percent to £52.1 million.
“In an extremely competitive market for Sports Fashion footwear across Europe, we must acknowledge that the levels of organic growth that we have seen over the last two years are unlikely to continue indefinitely, albeit the JD brand continues to strengthen and further opportunities prevail,” Executive Chairman Peter Cowgill said. “Our current successful exploitation of these favorable market conditions reflects investments that we have made over a number of years in developing our multi-channel retail proposition and driving improved buying, merchandising and retailing disciplines. We continue to invest heavily in these areas.”
The segment ended the period with 692 stores and 2.68 million square feet of retail space, up from 660 stores and 2.51 million square feet a year earlier.
As anticipated, the overall gross margin in Sports Fashion came in slightly lower than the previous year due to the impact of the weaker euro on JD's euro denominated businesses.
“The financial impact of this may currently be small in the context of overall earnings but it is an escalating issue as we expand our presence in Europe,” Cowgill noted. “We are maintaining a long term view on our European development project and will continue to address the issue both internally and externally with our international brand partners.”
Outdoor losses decline
Total operating losses at the company’s Outdoor segment (before exceptional items) declined to £4.5 million compared with £5.6 million in the first half of 2014 despite heavy discounting of surplus autumn and winter ranges in the first quarter and pre-opening costs associated with the development of the Ultimate Outdoors concept. JD Sports converted two more former Kiddicare stores to the concept during the period.
Sports Direct place Black's Millet and Ultimate Outdoors under a common management team to
increase senior management control over merchandise management and other key decisions. The segment ended the period with 187 retail locations, up from 184 a year earlier, including 71 Blacks, 96 Millets and 16 Tiso stores. Those stores comprised 684,000 square feet of retail space, up 12.5 percent from a year earlier.
“As expected, a major focus of our Outdoor businesses in the first half has been to deal with the stock overhang following the generally mild and dry winter,” said Cowgill. “Significant progress has been made although some stocks still need to be cleared in the forthcoming autumn season which will limit margin progression in the second half. Our challenge now is to ensure a smooth transition into the autumn / winter ranges recognising that a flexible rather than time rigid approach is required.
“We are optimistic that these strategic initiatives will improve the product proposition, the market positioning and stock turnover of each fascia giving us a base on which to drive a significantly improved performance in 2016/17.
Balance sheet and capital spending
JD Sports’ gross capital expenditure (excluding disposals) increased by £21.4 million to £47.7 million as it continued to enhance customer experience, open new stores and refurbish olders ones both in the United Kingdom and Europe. Spending on stores increased by £13.6 million to £28.8 million. A similar level of investment is expected for the second half.
Investment to increase the operational capacity and flexibility of the company’s Kingsway warehouse increased by £4.7 million to £7.8 million. The company also acquired a plot of land next to our existing Kingsway site to facilitate potential future development at a cost of £4.7 million.
Sports Direct ended the period with a net cash balance in excess of £100 million for the first time, putting it in a position to continue expanding both in the UK and internationally, improve IT systems and other operational infrastructure and continue to make selected acquisitions. Inventory as of Aug. 1 was £250.6 million, up 11.5 percent from a year earlier.
“We believe that we can achieve the same market leading reputation with customers and brands in Mainland Europe where we remain confident in our prospects, despite some significant headwinds on margin from recent weakness in the euro,” said Cowgill. “We have expanded our presence in a number of our existing territories with 84 JD and Size? stores open across Mainland Europe at the period end. Following the period end, we have also opened our first two stores in Belgium. There will be further international progress in the second half and we are looking forward to introducing our flagship concept to our customers in the Netherlands later in the autumn when we open on Nieuwendijk in Amsterdam”
While declining to provide guidance for the second half, Cowgill said “given the demanding comparatives following two years of strong revenue growth, we are encouraged by the positive nature of the trading to date in the second half across our core fascias.
Sports Direct does not plan to provide another earnings update until early January.
Condensed Consolidated Income Statement
For the 26 weeks to 1 August 2015
|
|
Note |
26 weeks to 1 August 2015 £000 |
26 weeks to 2 August 2014 (re-presented – see note 1) £000 |
52 weeks to 31 January 2015 £000 |
|
Continuing operations |
|
|
|
|
|
Revenue |
|
809,901 |
670,254 |
1,522,253 |
|
Cost of sales |
|
(425,896) |
(349,054) |
(782,703) |
|
|
|
|
|
|
|
Gross profit |
|
384,005 |
321,200 |
739,550 |
|
Selling and distribution expenses – normal |
|
(300,599) |
(263,583) |
(564,333) |
|
Selling and distribution expenses – exceptional |
3 |
(1,858) |
(1,770) |
(4,467) |
|
Administrative expenses – normal |
|
(36,690) |
(31,802) |
(73,969) |
|
Administrative expenses – exceptional |
3 |
– |
– |
(5,060) |
|
Other operating income |
|
862 |
653 |
925 |
|
|
|
|
|
|
|
Operating profit |
|
45,720 |
24,698 |
|
