Acquisitions drive Flannels owner Frasers Group revenue upwards, has big plans for 2023
Frasers Group’s results for the six month to late October showed the company continuing to prosper, even against a tough backdrop, with overall revenue up 12.7% at £2.638 billion.
Admittedly, that was largely due to acquisitions, and excluding those (as well as disposals) on a currency-neutral basis, revenue was up 3.9%. But this was still a good result in the current environment.
Reported profit before tax (PBT) rose 53% to £284.6 million with adjusted PBT up a smaller but still impressive 38.8% at £267.1 million. Net profit rose 52.8% to £219.6 million.
That came as all of the group’s divisions appeared to make progress, with its driving force -- UK Sports Retail -- revenue up 11.6% at £1.526 billion, and the important fashion-focused Premium Lifestyle rose 24.7% to £533.5 million. International Retail rose 5.8% to £492.2 million, and Wholesale/Licensing was up 8.6% at £86.2 million.
However, the group gross margin dipped to 42% from 44.7% a year ago, as expected. This reflected mix effects (from the acquisition of Studio Retail, the disposal of the US retail businesses and House of Fraser store closures), a strong prior year comparative of full-price trading, cost of goods inflation, and a maintained inventory provision percentage in the current period.
The company said that while the macroeconomic environment is challenging, and the backdrop for the coming year is hard to predict, it has “strong strategic and trading momentum, and we remain confident in our guidance for adjusted PBT of £450 million to £500 million for this financial year”.
Looking at the figures in more detail, the 11.6% increase in UK Sports Retail revenue, was largely due to the acquisition of Studio Retail Limited (SRL) in February. Excluding acquisitions, revenue fell 3.1%, impacted by Game UK and tough comparisons.
The Premium Lifestyle revenue leap was mainly accounted for by new Flannels stores plus continued growth in online sales, and even excluding acquisitions, revenue increased 22.2%.
The International Retail revenue rise was boosted by the acquisition of Denmark's Sportmaster and an increase in the Malaysian business, offset by the reduction in revenue following the disposal of the US retail businesses.
But with acquisitions, disposals and currency shifts factored out of the equation, international revenue increased by a healthy 9.2%.
Overall, the figures show that there's a lot going on at the company that’s still heavily focused on acquiring brands, and that in general, is one of the more successful names on UK (and international) high streets at present.
Its strategic acquisitions recently have included Missguided, I Saw It First and Gieves & Hawkes (post period-end), “unlocking new capabilities and customer bases”.
While those acquisitions can, at times, look a little undisciplined (given that they cover a variety of distressed businesses across an incredibly wide range of price points), the thinking behind them is very clear.
Buying the leading Danish sporting goods retailer Sportsmaster boosts it internationally in a core area of expertise for the British firm.
The Studio Retail acquisition “supports the strategy for bringing a credit offering to our customers. Taking this skillset and capability, we have just launched our Frasers 'Plus' product in our Cruise and House of Fraser fascias and associated websites. This will roll out across the majority of the group, including Sports Direct and Flannels, in 2023”.
In Premium Lifestyle, the acquisitions of Missguided, I Saw it First and Mysale “expands our digital offering and brings short lead time sourcing and further social media marketing expertise to that segment and the group”.
The Gieves & Hawkes buy, including the leasehold of 1 Saville Row, "is a great fit for our Elevated offering”.
And the just-acquired luxury homewares brand Amara Living “will support in building Flannels as a credible luxury homeware destination,” it said.
The group has been opening new physical stores, particularly for the luxury Flannels chain with massive investment in creating regional flagships, and also moving it into the beauty area.
It said it “will continue to elevate our stores and business in 2023, both organically and through disciplined acquisitions”.
Plans include a new Flannels flagship for Leeds, and a Sports Direct flagship store in Manchester. In fact, the Flannels rollout continues with approximately six stores to open in 2023. “With the support of our brand partners, our European expansion strategy will continue with a number of opportunities currently being assessed,” it added.
And not forgetting the behind-the-scenes activity. Frasers said it will invest around £600 million in a new distribution centre and offices in Coventry over the next 10 years, subject to planning approval.
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