Sports Direct International plc reported group revenue of £2.83 billion, or $4.43 billion, in the fiscal year ended April 26, up 4.7 percent compared with the fiscal year ended April 27, 2014.
The U.K.'s largest sporting goods retailers attributed the growth primarily to its Sports Retail division, where the revenues grew 5.5 percent. Premium Lifestyle revenue fell by 3.0%, largely due to the closure of loss-making stores in the period.
Group gross margin in the year increased by 110 basis points from 42.7 percent to 43.8 percent. Sports Retail division gross margin increased by 170 basis points to 44.6 percent (FY14: 42.9 percent). At the Brands division, which owns rights to Dunlop, Slazenger, Everlast and other brands, gross margin decreased to 40.3 percent (FY14: 43.1 percent).
Group operating costs increased 4.2 percent to £860.5 million (FY14: £826.1 million), while Group underlying EBITDA for the year grew 15.7 percent to £383.2 million (FY14: £331.1m). Sports Direct defines “underlying EBITDA,” “underlying profit before taxation” and “underlying EPS” as excluding realized foreign exchange gains/losses in selling and administration costs, exceptional costs and the profit/loss on sale of strategic investments. Underlying EBITDA is also stated as “pre-scheme,” which is to say they exclude the costs of the company's stock compensation program. Within this underlying EBITDA, Sports Direct increased the Retail division EBITDA by 16.0 percent to £349.1 million (FY14: £300.9 million) while the Brands division EBITDA increased by 12.9 percent to £34.1 million (FY14: £30.2 million).
For the year, Group underlying profit before tax increased 20.5 percent to £300.3 million, primarily as a result of the £52.1 million increase in EBITDA before include the cost of the company's stock compensation program – or “pre-scheme costs. Underlying EPS for the year increased by 21.2 percent to 38.9 pence (FY14: 32.1 pence).
Net debt at 26 April 2015 was £59.7 million (27 April 2014: £212.0 million), which is 0.16 times reported EBITDA (27 April 2014: 0.66 times). Reported EBITDA includes realized foreign exchange gains/losses in selling and administration costs and the Share Scheme charges.
“I am pleased to report that, despite the adverse impact on performance of England's early departure from last year's FIFA World Cup in Brazil and the unseasonably mild weather during Autumn reducing footfall, the Group has, yet again, succeeded in delivering another solid set of results,” said CEO Dave Forsey.
“The group has achieved another year of revenue and profit growth in a challenging retail environment, driven by continued expansion both in the UK and across Europe. During the year the comopany increased our store portfolio in the UK by 23 stores and have added a further nine stores to our European store portfolio. Sports Direct have also continued to develop large city center format stores.
“Sports Direct have also established a Fitness Division in the year, Sportsdirect Fitness.com, comprising 27 gyms including two combined gym and retail sites,” Forsey said.
Sports Retail Sales up 5.5 percent
Sports Retail sales grew 5.5 percent to £2.40 billion (FY14: £2.27 billion), driven largely by growth in the United Kingdom, offset by a weak Winter sports season across Europe and adverse foreign currency movements. Sports Retail gross margin for the year increased by 170 basis points to 44.6 percent (FY14: 42.9 percent). This increase is primarily attributable to on-going investment in 'better and best' product ranges, further enhanced by efficiencies gained by our strong supply chain disciplines.
Sales in the second half of the year were up 2.6 percent to £1.17 billion (FY14 H2: £1.14 billion). Gross margins for the second half of the year improved to 44.6 percent (FY14 H2: 42.5 percent).
Sports Retail same-store sales, which excludes online, increased by 7.4 percent, marking the sixth consecutive year of growth in this key performance indicator (FY14: +10.5 percent / FY13: +10.6 percent / FY12: +0.7 percent / FY11: +6.8 percent / FY10: +3.7 percent). The company said its comps base numbered 432 stores compared with 339 in fiscal year 2014.
Sports Retail operating costs increased by 9.0 percent in the year to £715.2 million (FY14: £656.3 million) compared to a 5.5 percent increase in sales and a 9.7 percent increase in gross profit due to the full year impact of proportionally higher costs in our recently acquired European businesses. Operating costs in H2 increased by 4.6 percent to £361.4 million (FY14 H2: £345.5 million) compared to a 2.6 percent increase in sales and a 7.7 percent increase in gross profit.
Store wages were up 13.1 percent in the year to £239.2 million (FY14: £211.4 million) but as a percentage of sales increased only to 10.0 percent (FY14: 9.3 percent) due to the annualized effect of new store openings combined with the full year impact of proportionally higher costs in recently acquired European businesses and reduced sales due to a difficult winter sports season in Europe. Sports Retail store premises costs increased by 9.5 percent to £211.0 millions (FY14: £192 million), due to investment in new stores and the full year effect of comparatively higher costs in our new European businesses. Other operating costs were up 14.2 percent to £280.8 million (FY14: £246.6 million), increasing as a percentage of sales to 11.7 percent (FY14: 10.8 percent) due to costs in our recently established Fitness division.
The currency impact on operating costs of the change in the Euro: Sterling exchange in our European businesses was a gain of £15.7 million (FY14: a cost of £5.6 million).
Underlying EBITDA for Sports Retail was £356.8m (FY14: £321.3 million), an increase of 11.0 percent for the year. This increase was driven by a £94.2 million increase in gross profit due to the growth in store contribution and online sales, offset by the £59.0 million increase in operating costs.
The Group's retail businesses performed strongly in a difficult economic environment. Our retail model, offering outstanding value to our customers, remains resilient, both in the UK and internationally. Throughout the year, Sports Direct continued to focus on offering our customers the most comprehensive product range, the best availability and value while minimising operating costs as a percentage of gross sales.
Online revenue up 14.4 percent
Online revenue has increased by 14.4 percent from £335.4 million to £383.8 million in the year, driven largely by the successful launch of Click and Collect in the UK during the second half of the year, which now accounts for over 20 percent of all UK online orders.
“This performance is exceptional considering we charge £4.99 for this service. Online sales represented 16.5 percent of Sports Retail sales (FY14: 15.1 percent), excluding wholesale sales,” Forsey noted.
The retailer's mobile site continues to drive sales and was recently ranked in the top four retailers in the FTSE 100 in terms of mobile website performance, according to a recent study released by The Search Agency (2). Mobile traffic now accounts for over 50 percent of all online visits. Sports Direct have also re-designed our checkout, introducing a guest checkout option and streamlining the checkout process.
“Sports Direct have worked hard to improve the customer experience in Europe, widening the language and currency conversion options on our sites for non-English speaking countries and going forward plan to introduce dedicated websites for our European businesses and additional payment methods including Ideal, Giro and Sofort,” Forsey said.
Following successful trials during the year, customers are now able to purchase and redeem gift cards online. Sports Direct are also working towards the introduction of a fast pay check out system, allowing customers to purchase a large number of products in small number of clicks.
Store expansion
The division has continued to expand, with the development of Sportsdirect Fitness.com, comprising 25 standalone former LA Fitness gyms and an additional two new build combined retail and gym spaces. A further two gyms in St Helens and Dundee are planned for early autumn 2015.
Sports Direct has worked hard to enhance and invest in our store portfolio during the year, with a particular focus on larger city centre stores. During the year Sports Direct re-located our Oxford Street store to the 50,000-square-foot former HMV store and have completed a 28,000-square-foot extension of our Glasgow store, which includes a store in store concept area with Under Armour. Sports Direct recently also acquired the freehold of the former Primark store in Leeds. Works are currently underway on this four floor, 50,000-square-foot store which is due to open this Summer.
Sports Direct opened 39 stores in the UK, closing 16 and have opened an additional 16 stores in Europe, closing seven. Twelve out of the sixteen UK closures were relocations into larger and better configured space. 428 of the UK store fascia are now branded Sportsdirect.com, an increase of 27 from last year (FY14: 401).
Period end square-footage increased to 4.75 million square feet. (FY14: 4.5 msf) in the UK and remained at 3.0 million square feet (FY14: c.3.0 msf) across the rest of Europe.
Brands Division up 4.1 percent
Revenues at the Brands division, which owns 19 brands including the outdoor brand Karrimor, increased by 4.1 percent to £226.4 million (FY14: £217.5 million). Wholesale revenues were up 4.4 percent to £193.3 million (FY14: £185.2 million), including growth in the challenging UK market. Trading in the US market was in line with expectations and continues to represent 40 percent of total wholesale sales.
Brands gross margin decreased by 280 basis points to 40.3 percent (FY14: 43.1 percent). Wholesale gross margins fell 310 basis points to 30.1 percent (FY14: 33.2 percent) largely due to a shift in the sales mix towards lower margin lines.
Licensing revenues in the year were up 2.5 percent to £33.1 m million (FY14: £32.3 million). During the year Sports Direct signed 58 new license agreements, covering multiple brands, product categories and geographies, with minimum contracted values of $25.0m over the life of the agreements. As of April 26, 2015, the Group had 401 license agreements worldwide, across 264 licensees, with contracted minimums of $305 million over the remaining life of the agreements.
Longer term, Sports Direct still regards licensing as the key driver of Brands division profitability and central to the overall growth of the Brands business. The key growth areas are expected to include Australasia and Asia Pacific with the acquisition of the Dunlop & Slazenger brands in the region during the year. This combined with growth in the Americas should compensate for a more challenging licensing landscape in the UK and Europe, as Sports Retail continues to expand in these territories.
Operating costs decreased by 9.7 percent to £57.0 million (FY14: £63.1 million) benefiting from the consolidation of our back office functions in the prior year. As a result of cost savings, underlying EBITDA increased by 12.9 percent to £34.1 m million(FY14: £30.2 million).
Sports Direct continue to focus on developing world-class products that are endorsed by leading athletes on the field of play and expect to spend £10-to-£20 million on advertising and promotional costs in the coming year.
CONSOLIDATED INCOME STATEMENT FOR THE YEAR ENDED 26 APRIL 2015
|
|
|
Year ended
|
Year ended
|
|
|
Notes |
£'000 |
£'000 |
|
|
|
|
|
|
Revenue |
2 |
2,832,560 |
2,705,958 |
|
Cost of sales |
|
(1,591,748) |
(1,551,036) |
|
|
|
|
|
|
Gross profit |
|
1,240,812 |
1,154,922 |
|
Selling, distribution and administrative expenses |
|
(950,526) |
(908,843) |
|
Other operating income |
|
8,345 |
8,583 |
|
Exceptional items |
3 |
(3,050) |
(5,531) |
|
|
|
|
|
|
Operating profit |
2 |
295,581 |
249,131 |
|
Other investment income |
|
|
