Sports Direct reported underlying EBITDA in its US Retail segment, including Eastern Mountain Sports and Bob’s Stores, was a loss of £23.0 million in the first half ended October 29 on sales of £63.9 million.
Sports Direct noted that US Retail’s underlying EBITDA is made up of £5.5 million of trading losses as group processes and strategies are implemented, and £17.5 million of losses relating to fair value accounting adjustments and accounting policy alignments.
On May 18, 2017, the U.K. sporting goods chain completed the acquisition of the trade and assets of Bob’s Stores and Eastern Mountain Sports out of bankruptcy proceedings. The purchase included 49 locations and provided Sports Direct “with a footprint in US bricks-and-mortar retail and a platform from which to grow US on-line sales.”
Companywide,Sports Direct’s revenue was up 4.7 percent to £1,714.6 million, aided by favorable Euro exchange rates and the acquisition of Bob’s Stores and Eastern Mountain Sports during the period. This was offset by store closures as part of the continued elevation of the portfolio. Excluding this acquisition, the Dunlop disposal and on a currency neutral basis, Group revenue was up 1.2 percent.
Gross margin for the Group decreased 180 basis points to 38.6 percent due to the impact of increased stock provisions and continued impact of the USD exchange rate.
During the period, Group operating costs decreased by 3.9 percent to £496.5 million. Excluding acquisitions and disposals and currency neutral, operating costs were down 3.5 percent. This is largely due to prior period onerous lease provisions and the closure of loss making stores in Europe.
As a result, Group underlying EBITDA increased by 7.4 percent to £156.1 million.
In FY18 H1, depreciation and amortization decreased by 7.0 percent to £64.0 million. Group underlying PBT increased by 22.9 percent to £88.0 million.
Reported profit before tax decreased by 67.3 percent to £45.8 million. The prior period included a profit of £119.7 million relating to the sale of JD Sports plc shares.
The Group generated underlying free cash flow of £150.9 million during the period, up from £129.5 million in the prior period as a result of the increase in Underlying EBITDA, aided by a gain on exchange differences in the period. FY18 H1 capital expenditure amounted to £99.9 million, purchases of listed investments were £131.6m and purchases of own shares including the share scheme vesting were £133.7 million.
Mike Ashley, chief executive of Sports Direct International plc, said, “Our high street elevation strategy is currently delivering spectacular trading performance within our flagship stores. We intend to open between 10 and 20 new flagship stores next year.
“Whilst our reported profit before tax has been impacted by fair value adjustments and transitional factors such as the disposal of assets in FY17; our underlying profit before tax remains healthy. We will continue to invest for the long-term and our net debt has increased in line with management expectations.
“We continue to anticipate that growth in underlying EBITDA during FY18 will be within our forecast range of 5 percent to 15 percent.”
Photos courtesy Eastern Mountain Sports
