Business news : Sports Direct's Revenues Jump in First Half

Sports Direct, the U.K. sporting goods chain reported underlying profit before tax increased 26.4 percent in the half ended Oct. 28, to £125.1 million ($203 million). Group revenue jumped 22.5 percent to £1.09 billion ($1.76 billion) with significant growth across all divisions.

Among the key highlights of the half:
  •  Sports online sales growth of 54% - now representing 12.5% of total Sports Retail sales (2012 H1: 9.5%)
  • Group Underlying EBITDA up 17.2% to £163.2m (2012 H1: £139.2m)
  • Underlying free cash generation of £143m
  • Opened in four new European countries
  • Acquisition of the Flannels Group for the Premium Lifestyle division
  • Invested in inventory and acquisitions while maintaining a strong balance sheet
  • Phase 2 of the Shirebrook expansion now fully operational
Dave Forsey, chief executive of Sports Direct International PLC, said, "
"The first half has been another record period for Sports Direct with the London 2012 Olympics and Paralympics playing a significant part in the Group's strong results. There is no doubt that Team GB's outstanding performance has helped increase the awareness and popularity of sport across the UK, and that we have maintained our position as the consumers' champion.

"The Group continues to deliver growth across its divisions and we have maintained our investment in margin, inventory and extra group marketing, while also investing for future growth, particularly in our International and e-commerce divisions.

"As stated in October, the Board remains confident of reaching our full year targeted underlying EBITDA of £270m (before the charge for the Bonus Share Schemes)."

The Company will report its Q3 Interim Management Statement on Thursday, Feb. 21.

Chairman's Statement
I am delighted to report the Group's strong operational and financial performance.  Growth has been achieved across the business with revenue and underlying EBITDA growing impressively.  The Group has continued to deliver strong cash generation and our balance sheet remains solid.  Our industry leading position, as the consumers' champion offering an unmatched range of products at the best available prices, ensures we are well placed for the future.

Significant developments in 2013 H1We grew Group revenue 22.5%, and underlying Group EBITDA (pre share schemes costs) by 17.2%.  This performance was driven by our focus on constantly improving our core performance - enhancing the quality of our stores, investing in staff training and expanding our range of products - and further expansion into newer areas, assisted by the Euro 2012 Championship and the London Olympics.

Our online business has developed significantly, growing sales by 54% (which now represents 12.5% of total Sports Retail revenue in the period), and the second phase of the expansion of our National Distribution Centre in Shirebrook has now been completed, with phase three due to commence in FY 2014.

In the first quarter, we acquired the Flannels Group ("Flannels"), a valuable addition to our Premium Lifestyle division alongside Cruise, Van Mildert and USC.  In the second quarter we purchased key assets from the administrators of JJB Sports plc ("JJB"). The Group acquired 20 stores, substantially all of the stock of the business and the Slazenger Golf brand licenses, as well as JJB's Freehold property in Wigan.

Employee Bonus Share SchemeThe Employee Bonus Share Scheme - which we believe is one of the most wide-reaching share schemes in operation in the UK - continues to aid staff retention and motivation, with the first vesting of the 2009 Scheme rewarding 1,750 employees in August 2012.  The second vesting is due in August 2013. If all four stretch EBITDA targets through to FY 2015 are met, assuming no employee departures, the 2011 scheme will reward c.3,000 employees.  We have already met the FY 2012 target and are confident of achieving the same in FY 2013.

Super-Stretch Bonus Share SchemeFollowing feedback from shareholders, the Board withdrew the resolution proposing this scheme from the agenda of the Company's AGM in September 2012.  Although a clear majority of shareholders had submitted proxies in favour of this resolution, it was clear to the Board that a significant minority of shareholders had some concerns regarding certain aspects of the scheme.  The Board remains committed to implementing a Scheme to recognise the ongoing substantial and essential contribution of Mike Ashley (who receives no remuneration), and, as such, the Board is reviewing shareholders' feedback. In addition, in light of the Company's continued strong performance, the Board is minded to increase the key underlying Super-Stretch EBITDA targets for the next two financial years (2014: from £290m to £310m / 2015: from £340m to £360m).

DividendThe Board has decided not to pay a dividend in respect of the half-year, as it believes it is in shareholders' best interests to maintain maximum flexibility at this time.

Thank you

On behalf of the Board, I should like to thank all of our staff for their substantial contribution to our success.  Without their commitment and professionalism, we would not be continuing to deliver such strong results.
Keith Hellawell
Non-Executive Chairman
13 December 2012

Business Review


In the first half, we have delivered strong results in line with management's expectations.  In the 26 weeks ended 28 October 2012 ("2013 H1"), Group revenues were up 22.5 percent to £1,088.9m compared with £888.6m for the 26 weeks ended 23 October 2011 ("2012 H1").  2013 H1 benefited from England's participation in Euro 2012, the London Olympics and Paralympics and an excellent 'back to school' period. The revenue uplift was supported by increases across all our divisions.  UK Sports Retail was up 18.1 percent, International Retail increased 11.4 percent and the Brands division was up 15.7 percent (including an 11.5 percent increase in licensing).

Retail division revenues have also been boosted by an 54 percent increase in online revenues and the full year effect of the creation of the Premium Lifestyle division.

Gross margin for the Group decreased 30 basis points to 41.2 percent (2012 H1: 41.5 percent) as a result of our continued investment in lowering prices and providing value to our customers.  The growth in revenue and profitability has been underpinned by the employee bonus share scheme.

Net debt increasedin the period by 10.3 percent to £160.3m (29 April 2012: £145.2m), which is 0.6 times historic rolling underlying EBITDA (2012 H1: 0.53 times) due to the Group's investments in inventory and acquisitions.

Sports Retail division
UK Sports Retail revenues increased 18.1 percent to £796.9m (2012 H1: £674.7m). This increase was supported by strong growth in online sales, up 54 percent to £110.5m, representing 12.5 percent of total Sports Retail sales (2012 H1: 9.5 percent). We continue to invest in our customer offering and experience to ensure this trend continues.  Although included within UK Sports Retail, we believe reporting online revenues as a percentage of both UK and International Sports Retail sales (excluding wholesale and other) is the most appropriate approach, as the online revenue includes some sales from outside the UK.

During the period, the retail division margin decreased 60 basis points to 41.0 percent (2012 H1: 41.6 percent) mainly due to the reduced margin in 20 former JJB stores acquired in September, which is included in wholesale and other.  UK Sports Retail margin was steady at 42.3 percent (2012 H1: 42.2 percent) while the International Retail gross margin increased 50 basis points to 44.4 percent (2012 H1: 43.9 percent).

UK Sports Retail's operating costs increased by 20.2 percent in 2013 H1, compared to the 18.1 percent increase in revenue, including costs associated with the 20 former JJB stores. This increase is mainly due to increased labour costs arising from additional warehouse capacity. As a result, we grew UK Sports Retail underlying EBITDA by 16.9 percent to £143.5m (2012 H1: £122.8m).

At period end, the Group had 398 stores in the UK (excluding Northern Ireland), a total of circa 4.0m sq ft (2012 H1: circa 3.9m sq ft).  These are divided between 313 core and 85 non-core stores and we have a clear, focused strategy to enhance our varied store portfolio.  Central to this is our flexibility and ability to move quickly where we identify store opportunities.  We are still targeting a total of between 15 to 20 core store openings in the UK this year, having opened 14 new core stores, including four that were relocated and closed six core stores in the period.

In September, we acquired key trading assets from the Administrator of JJB for a cash consideration of £24.0m. The Group acquired 20 stores, substantially all of the stock in the business, the JJB website and the Slazenger Golf brand licenses, as well as JJB's freehold property in Wigan.

We are constantly updating and expanding our product ranges. During the period the Group acquired Used Tackle Ltd, a retail chain with a full fishing product range that is now available through the SportsDirect.com website, with celebrity endorsement from Robson Green.

Through the Group's shareholding in the Heatons chain, sports products are retailed within 13 stores in Northern Ireland and 26 stores in the Republic of Ireland. The Group's share of Heatons operating result moved from a £1.0m loss to a £0.2m profit in the period.

International Retail revenues increased 11.4 percent to £90.6m (2012 H1: £81.3m), which in local currency represented an increase of 22.6 percent.  This was driven by a 20.0 percent increase in retail space through new store openings. The local management teams are able to leverage the stock control benefits of our UK-developed proprietary IT and operating systems.

The Group's strategy remains to expand our International Retail operations into all 17 countries that have adopted the Euro currency within five years, and we continue to deliver progress on this.  We will also consider opportunities in Europe that are outside the Eurozone.  In the period, we remained on schedule with our international store opening programme having opened three stores in Belgium, two in Portugal, , two in Hungary, two in Slovakia, and one each in Slovenia, France, Luxembourg and the Czech Republic. We have also entered into a joint venture which opened our first Icelandic store in May.

International Retail's operating costs increased 16.7 percent, compared to a 11.4 percent increase in revenue.  The proportional increase in costs is attributable to investment into the infrastructure as well as training and new store set up costs. Excluding associates, International Retail underlying EBITDA decreased by 1.2 percent to £8.0m (2012 H1: £8.1m).

Online order fulfilment and information technology solutions continued to be developed in-house with full back-up support from our national distribution centre resources in Shirebrook. Phase 2 of the Shirebrook expansion is now fully operational and a link between the existing and new warehouse is in progress to maximise efficiencies. Phase 3, the one million square feet new warehouse, is targeted for commencement in FY2014.

Premium Lifestyle Division
Our Premium Lifestyle division now includes USC, Cruise, Van Mildert and the recently acquired Flannels fascia. Sales in the period were £56.1m (2012 H1: £22.4m) with gross margins of 43.0 percent. Although loss making in 2013 H1, we have been pleased with the progress made in the division, and expect it to report an EBITDA profit for the full year.

Brands division
Brands total revenue increased 15.7 percent to £106.9m (2012 H1: £92.4m).

Wholesale revenues were up 16.4 percent to £92.3m (2012 H1: £79.3m) due to the acquisition of Firetrap at the end of FY2012 and growth in our US wholesale units. Excluding Firetrap, wholesale revenues were down 0.5 percent. Brands gross margin increased by 240 basis points to 43 percent (2012 H1: 40.6 percent). Wholesale gross margin increased 320 basis points to 34.0 percent (2012 H1: 30.8 percent).

Licensing revenues were up 11.5 percent to £14.6m (2012 H1: £13.1m). Our focus on licensing has contributed to this growth in the first half, having signed 56 new contracts with contracted minimum royalties of $19.5m over the life of the contracts.

Brands operating costs increased by 25.2 percent to £32.3m (2012 H1: £25.8m) in the period but £7.5m of this increase was related to Firetrap. The comparative period in the prior year included a £2m sponsorship payment to Darren Clarke.

Underlying EBITDA in the division increased 17.1 percent to £13.7m (2012 H1 £11.7m) due to the higher wholesale margin and licensing.

Since the end of the half year, sales have remained strong - and we continue to invest in margin, inventory and extra group marketing. In Q3 we re-launched our website, and our sales through this improved platform in the past few weeks have been encouraging.

The Board remains confident of reaching our 2013 full year targeted underlying EBITDA of £270m (before schemes costs) we announced in April. Looking out into 2014, we are confident that our strategy will continue to deliver growth, underpinned by our strengthened market position, albeit that next year's results will not benefit from any football championships or significant sporting events.

( SportsOneSource Media )

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