Frasers Group reported retail revenue increased 4.0 percent in the first half ended October 29 to £2.69 billion ($3.4 bn), helped by a “strong underlying performance” from Sports Direct due in part to the addition of new brands, including On Running, The North Face, Columbia Sportswear and Salomon.
“The Elevation Strategy continues to deliver, with significant progress across the key priorities we set out at full-year results,” said Michael Murray, Frasers’ CEO, in a press release about Sports Direct. “The global growth of, and interest in, sport is at an all-time high and continues to grow. Sports Direct is a market leader, delivering against our mission to serve the athlete with the best kit their money can buy.”
Murray called out Sports Direct’s efforts to continue diversifying and strengthening its brand partnerships.
“Our brand partnerships are stronger than ever, unlocking a more elevated product mix for our consumers, and we are proud to now have all the leading sports brands available via the Frasers ecosystem,” said Murray. “During the year, we welcomed On Running and The North Face, joining other leading brands from Adidas and Nike to Puma and Under Armour. The significant momentum we see behind our biggest segment, Sports Direct, provides us with confidence in the Group’s future expansion strategy.
The overall retail gain primarily reflected the impact of businesses acquired in the second half of FY23. Excluding acquisitions and disposals, revenue increased by 0.8 percent on a currency-neutral basis.
Group gross margin increased to 43.0 percent from 42.3 percent, driven by an increase in retail gross margin reflecting improvements in Sports Direct’s product mix as a result of strengthening brand relationships.
UK Sports’ Growth Boosted By Sports Direct Strength
Among its three retail segments, revenue in the UK Sports segment inched up 0.8 percent to £1,485.0 million, with Sports Direct gains more than mitigating a decline in Game UK and Studio Retail.
Gross profit in the UK Sports segment increased by £76.7 million, and gross margin increased by 490 basis points to 44.4 percent, reflecting an improved product mix in Sports Direct due to strengthening brand relationships and reduced lower margin sales from Game UK and Studio Retail, which contributed to a substantial £105.5 million (74.7 percent) increase in the segment’s profit from trading.
Premium Lifestyle Segment Impacted By Softer Luxury Market
In the Premium Lifestyle segment, sales improved 3.1 percent to £550.1 million. The impact of planned House of Fraser store closures and a softer luxury market were offset by sales from the businesses acquired from JD Sports Fashion plc in the second half of FY23. Excluding acquisitions and disposals, revenue decreased by 11.2 percent.
Segment profit from trading was reduced by £35.1 million, driven by the planned clearance of surplus inventory from businesses acquired from JD Sports Fashion plc and the impact of continuing closures of legacy House of Fraser stores, combined with an increase in operating costs related to integrating the acquired businesses.
Banners in the Premium Lifestyle segment include Flannels, Cruise, Van Mildert, Jack Wills, House of Fraser, Gieves and Hawkes, and Sofa.com along with the related websites, as well as the Missguided and I Saw it First websites.
Murray said about the Premium Lifestyle segment, “In our Premium and Luxury division, our dynamic brand partnerships enable us to elevate the consumer experience whilst providing an unrivaled proposition. Flannels continues collaborating with its luxury brand partners, including Christian Louboutin, C.P. Company and Hugo Boss, while the Flannels X concept space in London keeps pioneering innovative cultural experiences.
“Whilst there has been some softening in the global luxury market, partly because of the cost-of-living challenges facing the consumer, we have seen a positive demand due to our unique proposition. Our long-term ambitions for our Premium and Luxury business remain unchanged, and we continue to invest with confidence in our unique proposition, although it is likely that progress will remain subdued for the short to medium term in the face of a softer luxury market. However, we are excited about the potential prospects and are well placed to capitalize on opportunities in the sector.”
Murray added that in the Frasers business, “we are seeing a successful execution of our new concept stores, with a positive response from consumers and partners. We continue to redefine the brand as we build a sustainable and productive business model.”
International Retail Segment Sales Expand 13 Percent
In the International Retail segment, revenue jumped 13.2 percent to £645.8 million due to growth from Game Spain and the Sports Direct business in Europe, especially in Ireland, as well as the acquisition of the MySale business in Australia at the end of the first half of FY23. Game Spain’s sales have benefited from the increased availability of game consoles as inventory has become available in the Spanish market. Excluding acquisitions and disposals, on a currency-neutral basis, revenue increased 12.7 percent.
Segment profit from trading increased by £4.1 million, or 5.5 percent, year on year as gross profit growth (achieved at a lower margin percent due to Game Spain) was partially offset by the one-off costs associated with integrating acquired businesses.
Underlying Retail Profit Gains 26 Percent
Retail profit from trading reached £364.7 million from £290.2 million, representing a year-over-year gain of 25.7 percent. The improvement reflected strong trading performance from Sports Direct, reflecting the continuing success of the elevation strategy and strengthening brand relationships.
Adjusted profit before tax (APBT) increased 12.6 percent to £303.8 million despite lower profits from the disposal of properties and subsidiaries (£20.0 million in the current period vs. £117.5 million in the first half of FY23). Frasers also said there was a significant reduction in property and acquisition-related impairments as a result of the strong trading performance, and future forecasts outweighing its downside impairment assumptions (a net impairment reversal of £5.9 million in the current period vs. £77.7 million of impairments in H1 of FY23).
Reported profit before taxes (PBT) of £310.2 million, an increase of 8.0 percent, and reported profit after tax of £234.6 million, an increase of 5.6 percent, reflecting the strong trading performance partially offset by a reduction in foreign exchange gains and an increase in effective tax rate.
Murray said of the first-half performance, “We have delivered a strong performance in the first half of the year, with great momentum as we head into the Christmas trading period. The elevation strategy continues to drive strong trading performance across the business with good growth in Sports Direct supported by our brand partners.
“Our long-term ambitions for our Premium Lifestyle business remain unchanged, although it is likely that progress will remain subdued for the short to medium term in the face of a softer luxury market; however, we continue to invest with confidence in our unique proposition.
“During the period, we have opened new elevated stores and further strengthened brand partnerships to allow us to deliver the best consumer experience. I am also excited about the potential of our strategic investments, which we expect will unlock further opportunities for the Group. We have a clear ambition to be the leading sports retailer in EMEA, and we are making progress on broadening our footprint through a focused international M&A strategy.
“As we look to 2024, we are confident that our diversified proposition will continue to provide consumers with choice across a range of brands and price points. I want to thank our talented colleagues for their relentless focus and hard work, which has enabled another strong set of results.”
Frasers reiterated its guidance for the fiscal year ended April 30, 2024.
Murray said, “As noted at the FY23 preliminary results, FY24 started well. This strong trading momentum continued throughout the first half of FY24 and into the early recent weeks of the second half, especially at Sports Direct. We are looking forward to our Christmas trading period and remain confident of achieving APBT (Adjusted profit before tax) in the range £500m to £550m. We are building a diverse business for sustained multi-year growth. Our substantial ongoing investment into our elevation strategy, infrastructure and new business integrations continues to unlock that potential, and we expect further profitable growth for FY25 and beyond.”
Photo courtesy Sports Direct