JD Sports Fashion Plc reported same-store sales surged more than 10 percent in the first half of the year as it capitalized on the popularity of athletic footwear in its native U.K. market and Europe. Losses declined at its Outdoor segment, which operates 187 stores in the U.K.
JD Sports' group revenues reached £809.9 million ($1.36 bn) in the six months ended August 1, up 21 percent from the year earlier. Nevertheless, total gross margin slipped 50 basis points to 47.4 percent due to a lower margin in JD's euro denominated business.
The group's 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 before exceptional items for the period increased by 80 percent to £47.6 million ($80 mm) following an exceptional performance at the company's Sports Fashion banners and an encouraging reduction in losses at the Outdoor segment. The company expects its Outdoor segment will continue to improve in the second half.
Sports Fashion Extends Run
Revenues at the Sports Fashion segment, which focuses on selling sports products as fashion, surged 21.8 percent to £741.6 million ($1.25 bn). Sales were boosted by the opening of the largest store in the 433-store JD chain – a 22,000-square-foot, three-floor location on Oxford Street in London. The store offers JD's largest selection of footwear and clothing from brands such as Nike, Adidas, Converse, Vans, Fred Perry, The North Face, Supply & Demand, Duffer, and Hype.
“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 to prevail,” Executive Chairman Peter Cowgill said.
The Sport Fashion 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. The segment's flagship brand, JD Sports, operated 355 stores in the U.K. and Republic of Ireland and 78 in Europe. The segment also includes the Chausport and Sprinter chains.
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 the JD chain's euro denominated businesses. Operating profits before exceptional items soared 62 percent to £52.1 million ($87 mm).
Outdoor Losses Decline
Outdoor segment revenues rose 11.1 percent to £68.3 million ($115 mm). Total operating losses at the company’s Outdoor segment before exceptional items declined to £4.5 million ($8 mm) 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 its new Ultimate Outdoors concept.
JD Sports converted two more former Kiddicare stores to the concept during the period. JD Sports placed Blacks and Millet – which it acquired at the equivalent of a bankruptcy auction in 2012 – and Ultimate Outdoors under a common leadership team to increase senior management control over merchandise management and other key decisions.
“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 and winter ranges, recognizing that a flexible rather than time rigid approach is required.
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.
European Expansion Continues
JD Sports increased capital expenditures by £21.4 million, or about 80 percent, during the period as it continued to improve its omnichannel experience, open new stores and refurbishing older ones. Spending on stores increased by £13.6 million to £28.8 million. A similar level of investment is expected for the second half.
The group ended the period with net cash balance in excess of £100 million for the first time, putting it in a position to continue expanding in the U.K. and internationally, and make selected acquisitions. Inventory as of August 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. “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.”
JS Sports does not plan to provide another earnings update until early January 2016.
