JD Sports Racing to Right Blacks Leisure

JD Sports, which operates sporting goods stores in the United Kindom, Ireland and mainland Europe, said gross profit reached 49.2 percent of revenue, down 30 basis points from the same period a year ago as it absorbed losses from its acquisition of Blacks Leisure, which operates the United Kingdom’s largest chain of outdoor specialty stores. Operating profit declined 4.3 percent to £76.5 million ($81mm) and profit before tax fell 14.2 percent to £67.4 million ($72mm).

“Whilst we expect some improvement in consumer confidence from the forthcoming international sporting events, we remain cautious,” said Executive Chairman Peter Cowgill. “Trading in the early part of the current financial year has been satisfactory in the core UK and Ireland fascias with net like for like sales for the 9 weeks to 31 March 2012 of +1.2% (Sports Fascias +1.0%, Fashion Fascias +2.3%). Margins remain under pressure as consumers continue to be offer driven.”

When JD acquired the assets of Blacks Leisure for £20.0 million Jan. 9, it created a new reporting segment for the Group in Outdoor Retail.
  
Rebuilding Blacks

“The Blacks business was in a very fractured state on acquisition,” JD Sport reported in its annual report. “We inherited a limited and unbalanced stock position, with a particularly severe lack of stocks in many core high performing lines. The management team is investing a significant amount of time on developing relationships with the key brands and getting stocks flowing again.

 

“In the three weeks from acquisition to year end Blacks generated revenues of £5.9 million, but delivered an operating loss (excluding exceptional items) of £2.2 million for the period, which we attribute to the lack of stock in the business and the inheritance of an excessively large and overrented store portfolio as well as a disproportionate central cost base.

 
“Since acquisition we have closed 81 loss making Blacks stores leaving a current store base of 215 stores. Ultimately, determining the size of the long term store base will depend on store performance when set against newly negotiated rents and associated property costs. We are also evaluating the central overheads and rationalising where appropriate. We do not expect these savings to be wholly realised until Spring 2013 and so, whilst we expect a modest recovery in the second half, we now anticipate that Blacks will be earnings dilutive in the current year.
 
 
“We have started the process of streamlining the business and included in exceptional items is a charge for £3.5 million for redundancies and other restructuring costs following the initial review of both the store portfolio and overhead cost base. This review process is ongoing and we would anticipate a further charge for restructuring costs in the year to January 2013.

 
Companwide, sales, gross margin and operating profit before exceptional items for JD Sports four business segments are tabulated below:

Period to 28 January 2012	Sport Retail £000		Fashion Retail £000		Outdoor Retail £000		Distribution £000		Total £000
Gross revenue	774,991		151,642		5,876		135,117		1,067,626
Intersegment revenue	(380)		–		–		(7,723)		(8,103)
Revenue	774,611		151,642		5,876		127,394		1,059,523
Gross margin %	50.8%		48.5%		46.2%		37.7%		49.2%
Operating profit before exceptional items	74,301		3,303		(2,199)		1,056		76,461

Period to 29 January 2011	Sport Retail £000		Fashion Retail £000		Outdoor Retail £000		Distribution £000		Total £000
Gross revenue	667,224		134,110		–		85,498		886,832
Intersegment revenue	(1,290)		(162)		–		(1,711)		(3,163)
Revenue	665,934		133,948		–		83,787		883,669
Gross margin %	51.0%		49.0%		–		36.1%		49.5%
Operating profit before exceptional items	73,340		6,399		–		188		79,927