British retailer J.D. Sports Fashion Plc. reported sales reached $1.06 billion in the year ended Jan. 28, up 19.9 percent. Acquisitions of struggling European retailers propelled much of the growth, but also cut into earnings as it absorbed millions of dollars in losses at the Blacks Leisure chain acquired in January.
Gross profit reached 49.2 percent of revenue, down 30 basis points from the same period a year ago, as wary UK consumers shifted to lower margin products in response to higher VAT taxes and other austerity measures. Operating profit declined 4.3 percent to £76.5 million ($81mm) due in part to £2.2 million in losses on £5.9 million in sales at Blacks in the three weeks JD Sports owned the chain during the period. Profit before taxes fell 14.2 percent to £67.4 million ($72mm), reflecting $9.69 million in one-time charges, including a $3.5 million restructuring charge at Blacks Leisure.
JD Sports attributed losses at Blacks to lack of inventory, too many stores and excessive corporate costs. It has already closed 81 money-losing Blacks stores and may close more of the 215 that remain open depending on how they perform against newly negotiated rents.
JD Sports continues to evaluate corporate overhead at Blacks and expects to complete cost cutting at the company by Spring 2013. That means Blacks will continue to reduce JD Sports earnings for the balance of the current fiscal year.
“The Blacks business was in a very fractured state on acquisition,” JD Sport reported in a preliminary statement for the period. “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.”