JD Sports reported earnings more than doubled in the six months ended
Aug. 3, to 4.5 million pounds ($7.2 mm) from 2.1 million pounds a year
earlier. Sales improved 2.0 percent to 567.4 million pounds ($903 mm).
Its banners include JD, Size?, Scotts, Bank, Chausport, Champion, Sprinter, Blacks, Millets, Tessuti,
Cloggs and Ark.
Peter Cowgill, Executive Chairman, said:
"The
strong overall result in the first half has been driven by a record
performance in our core Sports fascias in the UK. This business
continues to provide the Group with a very solid platform for Group
profitability and future cash generation. We are also pleased with the
continued evolution of the JD fascia in mainland Europe.
"Elsewhere,
the performance of both the Fashion and Outdoor fascias has been
impacted by significant continued reorganisation activity in the period.
Whilst these reorganisations have had a short term negative impact on
the overall Group results, we strongly believe that the decisive actions
which we have taken were necessary for these businesses to deliver
returns in the longer term.
"The robust trading in the Sports
fascias has continued since the period end although trading in the
Fashion fascias continues to be more difficult. Overall, the like for
like sales for the core UK and Ireland Sport and Fashion fascias in the
five week period to 7 September 2013 are up by 2.8%.
"Given the
continued robust performance in our core Sports fascias, the Board
believes that the Group is well positioned to deliver results that are
within the range of current expectations."
Executive Chairman's Statement
Introduction
The
strong overall result in the first half has been driven by a record
performance in our core Sports fascias in the UK. This business
continues to provide the Group with a very solid platform for Group
profitability and future cash generation. We are also pleased with the
continued evolution of the JD fascia in mainland Europe.
Elsewhere,
the performance of both the Fashion and Outdoor fascias has been
impacted by significant continued reorganisation activity in the period.
In
Fashion, we have recently appointed Gwynn Milligan as the Managing
Director of Bank Fashion. She has previously held senior management
positions at Arcadia, and more recently at ASOS, and brings with her a
wealth of experience and a strong and successful record in the fashion
business. She is now conducting a full review of the Bank business
focusing on strengthening the proposition. We will continue to
strengthen other key commercial positions in the Bank Fashion team as
required. We have also continued to merge the operations of Cecil Gee
and Originals with those of Tessuti whose management team run our
fledgling Premium Fashion offer.
The results from the Blacks and
Millets store portfolios in the first year after their acquisition were
disappointing and we identified that a number of major operational
changes would be required if these fascias were to have the right
platform to develop. This reorganisation activity is now substantially
complete:
* Whilst there is some commonality of product
ranges and brands we have established that Blacks and Millets attract
fundamentally different consumers. Accordingly, Blacks and Millets are
now run as two separate fascias. We have recruited a separate Managing
Director and commercial team for the Millets fascia with Lee Bagnall
joining Millets as Managing Director in the period. He was previously
Chief Operations Officer at Go Outdoors.
* We have relocated
the warehouse and distribution operations from Blacks' former facility
at Northampton to the Group's core warehouse facility at Rochdale.
*
We closed the Northampton Head Office at the end of July and relocated
all functional teams to the Group Head Office in Bury. The business now
has a lower cost base and we have been able to complete our restructure
of the commercial functions.
Whilst these reorganisations have
had a short term negative impact on the overall Group results, we
strongly believe that the decisive actions which we have taken were
necessary for these businesses to deliver returns in the longer term.
Major Strategic Developments
We
have continued the international development of our JD fascia in
mainland Europe with further expansion in France together with the
acquisition of stores in Holland and Germany. We are pleased with this
momentum and are optimistic about our overall prospects overseas. At the
end of the period we had 12 JD and one Size? stores in France with six
further openings planned for the second half.
Spain has proved a
more difficult market to date for JD than France. We have made a number
of changes to our product offer there, aided by our strong management
team at Sprinter, and these changes are assisting progress. At the end
of the period we had six JD stores open there with two further stores
planned in the second half.
During the period we have also
expanded our presence in mainland Europe through the acquisition of 15
stores in Holland. We acquired these stores on 1 May 2013 with seven
stores refitted and open at the period end. A further seven stores have
opened to date in the second half.
On 1 July 2013 we acquired the
trade and assets of 10 small stores in Germany. These stores currently
trade as Isico Sports with conversion to JD anticipated in 2014.
Elsewhere,
we are satisfied with progress in replacing our legacy bespoke
commercial systems with Oracle Retail. We remain on track to bring the
first of the Group's businesses on to this system in 2014. Thereafter,
the retail businesses will be transferred in stages with all current UK
retail and JD fascia businesses anticipated to be working on the new
system by Autumn 2015.
Sports Fascias
The Sports
fascias have had an excellent first half with operating profits (before
exceptional items) increased by 10.3 million pounds to 29.2 million
pounds (2012: 18.9 million pounds ). This increase came from the core UK
and Ireland businesses where operating profits for the period were 30.0
million pounds (2012: 18.5 million pounds ). The UK and Ireland
figures include Champion which is now serviced and managed from the UK.
The
Sports fascias' total revenue (after elimination of inter-group sales)
increased by 11.2% during the period to 412.7 million pounds (2012:
371.2 million pounds ) with like for like sales for the period in the
core UK and Ireland sports fascia stores up by 7.5% (2012: +1.2%). This
is an exceptional performance in the current retail environment and is a
reflection of the popularity of both the product offering and customer
experience which our long established professional team have developed.
Operating profit in the UK and Ireland fascias has also benefitted from
an improvement in margin from 49.4% to 51.5% with strong trading driving
lower levels of markdown activity. The margin improvement also includes
0.5% (1.7 million pounds ) relating to a fair value adjustment of
future FX options following the movement in the exchange rate with the
US Dollar in the period. This gain has arisen purely from the volatility
of the exchange rate and potentially could reverse in the future.
Our
retail businesses in France have had a mixed period with a composite
LFL decline of -2.8% (2012: -0.9%). However, it is pleasing to report
that within this performance the JD stores saw like for like growth of
+7.1% as these stores continue to mature and customers become more
familiar with the JD proposition. Chausport had a more difficult trading
period during the Summer season although we are encouraged by the
recent performance in the key 'Back to School' period. The difficult
trading in Chausport has resulted in our overall loss in France in the
first half increasing slightly from 0.7m pounds to 1.0m pounds .
However, we remain optimistic about our overall prospects in France and
will continue to invest in appropriate new store opportunities.
Our
retail businesses in Spain have performed satisfactorily in a very
difficult economic market. Like for like gross takings increased by
+2.1% in the period. However, after taking into account the increase in
VAT from 18% to 21% on 1 September 2012, there was a small decline in
like for like net sales of -0.5%. As a result of the increase in the
rate of VAT and the consequent impact on margin, the overall profit in
Spain decreased slightly to 0.7m pounds (2012: 1.0m pounds ). We
remain very confident that we have the right experience and knowledge
within our management team in Spain to drive improved results in the
country. The performance of Sprinter continues to be very encouraging in
challenging conditions.
Overall gross margin achieved in the
Sports fascias has increased significantly to 50.9% (2012: 49.3%) driven
by the strong performance in the UK and Ireland and consequently good
sellthroughs, along with the exchange gains referred to above and a
strong own brand margin performance.
Fashion Fascias
The main Fashion fascias are Bank, Scotts and Tessuti.
The
Fashion fascias' total revenue increased by 8.8% during the period to
71.4 million pounds (2012: 65.6 million pounds ). Like for like sales
for the period for the two core fascias were down by 2.2% (2012: +0.7%)
being Bank -3.7% (2012: +1.3%) and Scotts +4.2% (2012: -1.6%). This
represents a slight improvement from the position announced in the
Interim Management Statement in June when the combined like for like
performance after 18 weeks was down by -5.0% with Bank, in particular,
driving higher volumes through the sale period.
Gross margin
achieved in the Fashion fascias has reduced from 47.6% to 45.8% with
lower margins in Bank and Tessuti as both businesses cleared excess aged
inventories.
In our statement in April we referred to our
turnaround plan for the Bank business. This plan included strengthening
the management team and whilst we believe that we now have a stronger
team in place, it will inevitably take some time for their full impact
to be reflected in the performance. We do not believe that the increase
in the operating loss to 4.8 million pounds (2012: 3.5 million pounds )
is a fair reflection of the business's longer term potential. However, a
substantial refreshing of the product proposition is required for there
to be a return to the profitability of relatively recent years.
The
Scotts fascia continues to serve a useful purpose to the Group as an
introducer of brands and provides revenue for a legacy store portfolio.
We are encouraged by its general trading performance which is reflected
in a reduction in first half losses to 0.6 million pounds (2012: 0.8
million pounds ).
The operating loss in our combined Premium
Fashion offering reduced slightly in the period to 0.8 million pounds
(2012: 1.0 million pounds ). There has been a lot of activity in this
business to consolidate systems and distribution and to clear stock
related to a legacy buy. These projects are now reaching their
conclusion. We continue to work with the major premium fashion brands to
ensure that we deliver a proposition which has the potential for a
national footprint whilst, critically, remaining regionally relevant. We
have made good progress in the period in dealing with the legacy
property issues with the former stores at Bristol Cribbs Causeway and
Trafford Centre now closed. All the key stores in Premium Fashion have
now been re'fasciaed as Tessuti which will be our long term fascia name
in this sector.
Outdoor
Our Outdoor fascias have
had a mixed period. The very cold weather in February and March enabled
the business to clear substantial volumes of heavy winter jackets which
had been bought in excessively large volumes for the Autumn and Winter
season before the current management team joined us. However, these
sales were achieved with considerable margin sacrifice. Thereafter,
these fascias have had a difficult period which is a reflection of the
fact that the buy for the Spring and Summer season had been done on the
assumption that the business would consist of a single fascia of Blacks
with a portfolio of approximately 130 stores. However, the reality is
that by keeping Millets not only have we kept more stores than we
expected but our product mix requirement is different to that which was
anticipated when the buy was placed. The decision to continue with the
Millets fascia created a shortage of own brand product adding to the
margin impact of pricing pressure on branded products.
Consequently,
the operating loss for the combined Blacks and Millets fascias has only
reduced slightly in the period to 8.9 million pounds (2012: 10.0
million pounds ), which is a disappointing performance. The margin
reduced to 44.4% (2012: 52.7%) reflecting both the clearance activity in
the first quarter and the fact that the initial stocks in the business
in the prior year were acquired from the administrator at a heavy
discount.
At the end of the period we had 157 trading stores
comprising 81 Blacks and 76 Millets. These stores included new Blacks
stores in Wycombe, Fareham and Brighton. There will be further new store
openings in the second half including a number of former Millets
locations which we previously handed back as being unsuitable for Blacks
but where we will take short term leases whilst we reassess the
viability of those locations as Millets stores.
The forthcoming
Autumn and Winter season is a key period for Blacks and Millets with the
restructuring of the business operations substantially complete. We now
have separate dedicated management and commercial teams supporting each
business and they are working hard to bring in the right product for
their fascias. In this regard, we are delighted that Jack Wolfskin
product is now available in Blacks stores. This is an important
indicator for us that the business still maintains strong international
brand support and goodwill.
Inevitably there will still be some
residual stock mix issues to deal with. However, our management teams
are focused on delivering a significantly improved performance in the
second half, which traditionally has been the stronger part of the year
for the business.
Distribution
The first half
operating losses in the Distribution businesses have increased by 2.6
million pounds to 3.0 million pounds (2012: 0.4 million pounds ),
primarily following the disposal of Canterbury in 2012 which delivered
an operating profit in the first half of 1.5 million pounds . The
disposal of Canterbury meant that gross revenues (before elimination of
intersegment revenues) decreased by 38.3% to 43.6 million pounds (2012:
70.7 million pounds ).
Group Performance
Revenue, gross margin and overheads
Total
Group revenue increased by 2.0% in the period to 567.4 million pounds
(2012: 556.0 million pounds ) with growth of 5.8% on a like for like
basis in sales in the UK and Ireland retail fascias. The prior year
included 28.1m pounds of revenue from Canterbury which was subsequently
disposed in September 2012.
Ultimately, Group gross margin
increased in the period from 48.4% to 48.8% reflecting a strong margin
in the core JD business in the UK with reduced levels of markdown
activity and a gain from the movement in the fair value of foreign
exchange options. This gain could potentially reverse in the future.
Selling
and distribution overheads have reduced to 42.8% of revenue (2012:
43.7%) reflecting the closure of loss making Outdoor stores and the
elimination of the duplicate warehouse costs that we experienced in the
prior year.
Administrative expenses have been maintained at 4.5%
of revenue (2012: 4.5%) reflecting our determination to keep control of
the overhead base.
Operating profits and results
Group
operating profit (before exceptional items) for the period increased by
7.2 million pounds to 10.4 million (2012: 3.2 million pounds )
following an exceptional performance by the Sports fascias in the core
UK market. The profit comprises a Sports fascias profit of 29.2 million
pounds (2012: 18.9 million pounds ), a Fashion fascias loss of 6.9
million pounds (2012: loss of 5.3 million pounds ), an Outdoor fascias
loss of 8.9 million pounds (2012: loss of 10.0 million pounds ) and a
Distribution segment loss of 3.0 million pounds (2012: loss of 0.4
million pounds ).
There were net exceptional charges of 3.9
million pounds in the period (2012: nil). This includes a charge of 2.2
million pounds (2012: nil) for business restructuring connected with
the relocation of the Blacks and Champion warehouse and head office
operations to the Group facilities from Northampton and Dublin
respectively.
Group profit before tax in the period ultimately
increased by 3.2 million pounds to 6.1 million pounds (2012: 2.9
million pounds ).
Current Trading and Outlook
The
robust trading in the Sports fascias has continued since the period end
although trading in the Fashion fascias continues to be more difficult.
Overall, the like for like sales for the core UK and Ireland Sport and
Fashion fascias in the five week period to 7 September 2013 are up by
2.8%. We maintain our belief that the product proposition for the
Outdoor fascias has improved significantly for the second half of the
year but it is too early in the season to make any further comment on
the performance.
As ever, the Group result for the full year
remains very dependent on the sales and margin performance in December
and January and we will issue an update on trading in the third quarter
in our Interim Management Statement in November.
Given the
continued robust performance in our core Sports fascias, the Board
believes that the Group is well positioned to deliver results that are
within the range of current expectations.
Peter Cowgill / Executive Chairman / 18 September 2013
By press release
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