By Charlie Lunan

Sports Direct International plc, which reportedly abandoned a bid for hundreds of Sports Authority stores last month, reported margins flatlined at its sporting goods retail segment in fiscal year ended April 24, 2016 as sales slowed in the back half of the year.

The U.K.’s largest sporting goods retailer said revenues grew 3.9 percent to £2.49 billion at its Sports Retail unit, after including results from Heatons, a 42-store department store it finished acquiring this spring. Excluding Heatons, segment sales grew just 0.6  percent despite a net increase of 30 stores.

Gross margins at the Sports Retail segment declined to 43.6 percent in the second half of the period, from 44.6 percent in the first half, due to discounting required to clear excess winter stock. Like-for-like gross contribution, which excludes online sales, decreased by 0.8 percent compared to the prior year. The number of Sports Retail stores included in fiscal 2016’s comp base increased to 531 from 432.

Operating expenses increased by 2.6 percent excluding the impact of Heatons, and 6.9 percent including the impact of Heatons to reach 8.9 percent of revenue. Store wages remained flat at 10.0 percent of sales despite the  decision to pay all U.K. retail associates more than the minimum wage beginning January 1, 2016 in response to broad criticism of its wage practices.

Underlying EBITDA declined 2.2 percent from fiscal 2015 to £349.0 million.

The Sports Retail unit ended the year with 733 stores, including 458 in the U.K. and the balance in 20 European countries and Iceland. The total reflected the opening of 60 new stores in 11 countries -including the 42 Heaton stores – and closing 29. Retail square footage grew by 500,000 square feet, or 6.5 percent.

Post Brexit Outlook
Last fall, Sports Direct agreed to pay €47.5 million to acquire the 50 percent of Heatons it did not already own and announced plans to invest millions of pounds opening sporting goods departments within its stores. At the time, only five Heatons stores sold sporting goods. Heatons operates  15 stores in Northern Ireland and 27 in the Republic of Ireland, including five that sell sporting goods.

“The Republic of Ireland is the fastest growing economy in Europe, our closest neighbor, the only country with a land border with the U.K. and is a nation of sport fanatics,” said Sports Direct CEO Dave Forsey at the time. “Our unique offering, when fully available, will be transformative. The Irish retail sector grew 9.3 percent last year with clothing and footwear growing at 12.8 percent, according to the Central Statistics Office, so it is a great place to be.”

In its earnings release, Sports Direct said that the outlook had become less clear since last month’s Brexit vote, but that it would continue to invest to grow organic sales and acquire new business. In fiscal 2017 that will include opening and upgrading stores and opening its first Everlast branded gym at its Sports Retail Fitness Division, which acquired 30 LA Fitness gyms in London in 2014.

“Since the EU vote we expect the current political uncertainty, and potential weakness in the U.K.’s short to medium term economic outlook, is likely to act as a continuing drag on consumer confidence,” Forsey said in the earnings release. “When combined with the structural difficulties for U.K. retailers, including high street footfall, and our exposure to the weakness of the pound against the U.S. dollar (as announced on June 24, 2016), these factors make the current outlook for fiscal year 2017 somewhat uncertain and therefore hard to predict.”

The release did not comment on reports Sports Direct and Modell’s Sporting Goods considered submitting a joint bid for more than 200 store leases that came up for sale at Sports Authority’s bankruptcy auction late last month. Neither company to date has submitted such a bid.

Photo courtesy Sports Direct