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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