JD Sports said its acquisition of The Finish Line in June resulted in a small contribution to both earnings and sales in the first half ended August 4. The U.K. sneaker retail giant said it planned to “test JD’s highly differentiated multichannel retail proposition in the United States with a small trial” while leveraging “JD’s recognised global market-leading standards” at Finish Line’s existing locations.
In a statement, JD Sports reported operating profits rose 19.9 percent in the six months ended August 4, to $123.9 million from $103.3 million a year ago. In the seven week period post acquisition, Finish Line contributed £4.8 million of the £20.6 million increase in operating profit. On June 18, JD Sports acquired The Finish Line Inc. for cash consideration of $558 million (£400.5 million).
Overall revenues grew 35.0 percent to £1.85 billion from £1.37 billion. Finish Line contributed revenues of £180.0 million.
Companywide gross margins improved to 48.2% in the latest half from 47.4 percent in the same period a year ago. EBITDA improved 26 percent to $171.8 million while profit expanded 19 percent to $121.9 million.
Peter Cowgill, executive chairman, said in a statement, “This is another record result for our Group demonstrating that our multibrand multichannel premium offer has resilient profitability in its core UK and Ireland market with capacity for continued growth across an increasing number of international markets.
“Against a backdrop of widely reported retail challenges in the UK, it is extremely reassuring that the profitability in the UK and Ireland Sports Fascias has been further enhanced. This reflects the value of the investments that we have made over a number of years in developing a dynamic multichannel proposition which marries the best of physical and digital retail enabling customers to interact with us where and when they want and through the channel of their choice.
“Sales to date in the second half have continued at similar levels to those in the first half supporting our continued confidence in the robustness of the JD proposition. We remain confident that we are well positioned to deliver an outturn in line with current market expectations which, including a part year from Finish Line, range from £337 million to £345 million and we also remain encouraged by our prospects for future growth.”
On the Finish Line acquisition, Cowgill said in the statement, “The completion of the acquisition of the Finish Line business in the United States has further significantly extended the Group’s global reach. With a population in excess of 300 million people, the United States is the largest market for sport lifestyle footwear and apparel. It was also the origin of the athleisure trend and is the home to many of the global sportswear brands. The management teams in JD and Finish Line are already working together on a project to test JD’s highly differentiated multichannel retail proposition in the United States with a small trial to commence ahead of the peak holiday trading period. Another small trial focussed on elevating the customer experience in Finish Line stores by leveraging JD’s recognised global market-leading standards in Sports Fashion visual merchandising is also ongoing.
“We are increasingly optimistic about the international potential of the JD fascia which, prior to the proposed developments in the United States, has a presence in 14 countries outside of its core UK and Ireland market. We are confident that our digitally integrated proposition, which delivers a dynamic and exciting multichannel experience to consumers in store and online, is both scalable and transferrable across a wider geography and, with the ongoing support of our key brand partners, we continue to look for opportunities to expand JD’s global reach further.”
JD’s statement noted that Finish Line currently operates 553 Finish Line branded stores across 44 U.S. states and Puerto Rico. In excess of 20 percent of Finish Line’s are supported by e-commerce, including sales picked from store stock.
Cowgill noted that Finish Line is the exclusive retailer of athletic footwear, both in-store and online, for the Macy’s department store with 375 branded concessions currently trading “although we will look to close a double digit number of loss making concessions through the second half.”
Cowgill added, ”It is the company’s current intention to operate a dual fascia strategy in the US, working with the Finish Line management team to roll out the JD product and multichannel retail concept in key locations with an initial trial covering a small number of locations planned for this year. We will also look to improve retail and visual merchandising standards in the Finish Line estate.”
The companywide strong performance was driven by its Sports Fashion segment, which includes Finish Line as well as its JD chain. Sales grew to £1.64 billion, up from £1.17 billion a year ago. Operating profit increased 24% to £127.7 million. Like for like store sales across the global Sports Fashion fascias were marginally positive in
Said Cowgill, “We are particularly encouraged by the continued growth of the JD fascia in its international markets with a significant double digit increase in total like for like sales in both Europe and Asia Pacific. In both of these regions, our trading websites are becoming increasingly significant in scale with access to the universal stock pool at Kingsway maximising availability.”
Gross margins increased slightly in the Sports Fashion segment despite challenges in the marketplace.
JD Sports ended the period with 2,184 Sports Fashion Fascias, up from 1,237 at the start of the period. These include the addition of 556 Finish Line stand-alone locations and 375 Finish Line shops inside Macy’s.
In the Outdoor segment (Blacks, Millets, Ultimate Outdoors, Tiso, Go Outdoors) sales reached £208.2 million, up from £196.6 million. EBITDA in the period came to £2.9 million, down from £6.5 million in the same period a year ago. After depreciation and a further charge for the non-trading amortisation of fascia and various brand names, the operating loss was £3.8 million against earnings of £100,000.
Said Cowgill “After capitalising on the opportunities provided by the severe winter weather in the early part of the year we exited the first quarter with a composite total like for like growth across stores and online of 7%. However, trading in the second quarter was very challenging with the hot and dry weather across the UK for long periods having a significant impact on footfall into stores. Notwithstanding the weaker trading in the second quarter, we ended the half with a total like for like in our composite fascias which was still marginally positive.”
Cowgill added, “We continue to plan for further integration of the Outdoor businesses as we believe that the most efficient way of leveraging stock across Blacks and Go Outdoors is through access to one pool of stock with common merchandising systems and shared central warehousing. Therefore, it is our intention that Go Outdoors will now transfer onto the Group’s ERP and into shared warehousing in the first half of next year. There is also increasing integration of the management teams with Lee Bagnall now Managing Director of both Blacks and Go Outdoors.”
Photo courtesy JD Sports