Dec 10, 2020
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Frasers Group sales drop is small, profits rise

Dec 10, 2020

Frasers Group saw lower sales in its first half, as would be expected given that most of its stores were closed for part of the period. But the fall was relatively small and the company’s profits rose.


The report was quite tame by Frasers standards with none of the shocks linked to some previous earnings reports. And investors seemed happy as its shares soared almost 14% in early trading on Thursday.

In fact, in a half-year like no other (the 26 weeks to October 25), group revenue dropped by only 7.4% to £1.89 billion. Admittedly, that was partly helped by the fact that the company made acquisitions in the last year. But even without those, and on a currency-neutral basis, revenue only fell by 11.2%.

Within that, its premium lifestyle division saw a 4.8% revenue increase to reach £320 million, largely due to new luxury Flannels stores, increased web sales, and a full period of the prior year acquisitions of Jack Wills and Sofa.com. Without acquisitions, the division’s revenue was down a tiny 0.7%. 

UK sports retail revenues fell nearly 10% to £1.07 billion due to store closures (although online helped counter this), while European retail was down 3.7% at £352 million. Retail in the rest of the world was a bit tougher with a 16.3% drop to £77.1 million, while wholesale & licensing was worse. It saw a 21.5% fall to £72 million.

But the group gross margin was actually up slightly at 44% and underlying EBITDA rose 25% to £226.3 million. Reported pre-tax profit rose nearly 18% to £106.1 million.

And the company said the successful reopening of its stores in England on 2 December, “combined with continuing strong online performance means we can confidently raise the bottom end of our full-year guidance for FY21”. It now expects a 20% to 30% improvement in Underlying EBITDA during FY21.


Chairman David Daly also said that with its stores having been closed for a second time in recent weeks and months across various markets, its “online offering remains resilient and helps to mitigate to a certain extent the negative effect caused by these bricks and mortar closures”.

He added that the group has continued to strengthen relationships with key suppliers, an important development given that some supplier relationships had been less than perfect previously. He cited Nike for Sports Direct, Burberry for Flannels, and Hugo Boss for House of Fraser as those it has worked hard on and improved, saying that its efforts to “bring new consumer experiences to our stores” have been crucial here.

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As previously reported, the company has also increased its investment in Hugo Boss to around 10%, as well as boosting its stake in another key supplier, Mulberry, to 37%.

The company is also investing in its stores as part of its elevation strategy and it’s undertaking “significant investment” in its flagship Sports Direct store on Oxford Street in London, “confident in its future trading prospects”.

And it’s investing in excess of £100m in its digital elevation strategy, which “is already bearing fruit”. It said that with this in mind, “and with the continued growth and progression in our Flannels business, we are now considering a further investment specifically in digital luxury elevation for the Flannels business. We will announce further details with our full year results in Summer 2021”.


So what actually happened in its key operations in the latest six months?

Premium Lifestyle, which  consists of Flannels, Cruise, van mildert, House of Fraser, Jack Wills and sofa.com, saw sales rising, as mentioned. But the gross margin decreased to 47%, driven by a reduction in higher-margin concession sales within House of Fraser as a percentage of total sales.

Yet underlying EBITDA for Premium Lifestyle improved from a loss of £7.6 million to a profit of £28.4 million for the period, largely due to Flannels store openings, a full period of trading for prior year acquisitions, continued operating efficiencies, and business rates relief, particularly for House of Fraser.

UK Sports Retail remained the main driver of the group’s trading performance and accounted for 57% of group revenue. While its revenue fell almost 10%, excluding acquisitions it fell 12.6%, due to store closures, but was boosted by online trading. The gross margin increased to 44.4%, as product margins were maintained and continued to improve. Underlying EBITDA for UK Sports Retail was £151.4m, an increase of 6.7%, largely due to the strong reopening of stores after lockdown, growth in the online business, and improved operating efficiencies.

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