JD Sports Fashion Plc reported sales from continuing operations grew 25 percent to £1.52 billion in 2014 as its Sports Fashion segment rode the athleisure trend and European expansion to impressive growth that more than offset weather related discounting at its much smaller Outdoor segment.
The U.K.-based retail group, which operates 844 sporting goods and fashion stores throughout Europe, reported total gross margin was stable at 48.6 percent as a slight increase in the margin at its much larger Sports Fashion business was offset by a 340 basis point drop at the Outdoor segment. Operating profit (before exceptional items) increased by £19.2 million, or 23.1 percent to £102.2 million compared to the year ended Feb. 1, 2104 thanks to an exceptional performance in Sports Fashion and narrower losses in Outdoor.
“This result has been driven by an outstanding performance in our Sports Fashion fascias where JD's unique and often exclusive sports and fashion premium brand offer continues to enthuse and excite both customers and suppliers,” said Executive Chairman Peter Cowgill. “We believe that our collaborative approach to working with third party brands to create a unique, premium and often exclusive offer is a major contributor to our success.”
Sales grew 22.4 percent to £1.35 billion at the Sport Fashion segment, which sells Nike, Adidas and other international sports and fashion brands from 660 locations, including 58 opened during 2014. The fleet includes 351 JD stores in the UK and Republic of Ireland, 65 JD stores in Europe, 73 Chausport stores and 80 Sprinter.
Gross margin improved 40 basis points to 49.5 percent. Operating profits – before exceptional items – from continuing businesses rose 18 percent to £107.0 million, o at the Sports Fashion segment, up 18 percent from £91.0 million in the fiscal. The growth was attributed to a 13 percent increase in same-store sales amid buoyant demand for branded athletic footwear across Western Europe, where the company expanded its fleet of JD stores to 65 by opening 19 new stores.
Outdoor segment hit by Q4 discounting
At the Outdoor Segment which includes 184 stores operating under the Blacks, Millets and Tiso banners as well as the ActivInstinct e-commerce business, operating losses narrowed to £4.87 million on sales of £169.9 million. That compared with a loss of £7.98 million on sales of £111.9 million in the year ended Feb. 1, 2014. The inclusion of a full year of the lower margin sales at Tiso and ActivInstinct stores and the impact from heavier discounting in the final quarter of the year drove gross margins down 340 basis points to 41.3 percent.
“The second half of the year saw weaker than hoped for sellthrough of autumn and winter ranges during a particularly mild and dry season,” the company,” Cowgill said. “Heavy discounting has inevitably followed across the whole sector to deal with the resulting imbalance between supply and demand, a process which has continued into the new financial year.”
The slowdown at Outdoor took down consolidated same-store sales growth at all the company's continuing banners to a still impressive 12 percent compared with the fiscal year ended Feb. 1, 2014.
JD Sports Fashion reported net exceptional items of £9.5 million (2014: £5.2 million) which include a charge of £5.1m for the impairment of intangible assets previously recognized on the acquisitions of Blacks Outdoor Retail Limited, Kukri Sports Limited and Ark Fashion Limited. The company ended the year with net cash balances of £84.2 million, up 85.9 percent from a year earlier, including the impact from £16.5 million of lease incentives received in the last two months connected with the acquisition of five former Kiddicare stores. The company ended the year with inventory valued at £225.0 million, up 20.9 percent from a year earlier.
Outdoor segment may not see profit until 2016
The company plans to continue opening news Sports Fashion stores in Europe while fine tuning operations at its Outdoor segment closer to home.
“We have continued to extend our store presence in Europe with 19 new stores for JD and Size?, taking us to 70 stores” said Cowgill. “We are also encouraged by the performance of Sprinter in Spain and Chausport in France. In so far as this progress continues, we anticipate further growth in overseas markets.
The Outdoor Segment continues to work with its branded partners and its own brand supply chain to achieve “a more focused consumer targeting” for each of its banners.
“A requirement to clear excess Autumn and Winter inventories means that whilst we anticipate that Outdoor will move towards profitability in the new financial year, it may be 2016/17 before this objective is achieved,” Cowgill said.
