JD Sports profits hurt by one-offs, but business is clearly strong
JD Sports Fashion’s preliminary results for the year to late January highlighted the strength of the business that has become one of the leading sports, retailers globally.
That strength should continue with the company forecasting 2023-24 profit before tax and exceptional items of £1.03 billion.
Last year, record sales figures saw revenue at £10.12 billion, up from £8.56 billion a year earlier. However, gross profit as a percentage was down to 47.8% from 49.1%.
EBITDA before adjusted items was up to £1.696 billion from £1.606 billion and operating profit rose to £1.06 billion from £1.01 billion.
Profit before tax and adjusted items was up to £991.4 million from £947.2 million. However, after adjusted items it was down to £440.9 million from £654.7 million. The company had £550.5 million of one-off adjusted items this time compared to only £292.5 million in the prior year. This higher figure was linked to minority shareholders in certain subsidiary businesses, impairments of intangible assets on acquisitions in prior periods, and losses incurred in divesting its non-core branded fashion businesses.
Company chair Andrew Higginson called it "another period of excellent progress” due to “organic sales at constant exchange rates 12% ahead of the prior period with a significant strengthening in trade through the second half, particularly in North America, as the supply of product from a number of international brands normalised”.
It was clearly a year of change for JD in which it saw a new CEO with the arrival of Régis Schultz and also sold off many of its fashion brands to focus on its core sports offer.
Reviewing the year, Schultz said it saw another “robust performance” in its premium Sports Fashion retail chains in the UK and Republic of Ireland, which delivered a profit before tax and adjusted items (excluding IP charges) of £356.2 million against £386.4 million. The latest period included extra costs and a full annual charge for business rates that hadn’t been seen in the prior year.
The UK and Republic of Ireland is the most mature market for the JD and Size? chains with store openings and relocations to better sites demonstrating “our ongoing commitment to continue raising standards in the retail of premium sports fashion product ranges”.
He also said the company is pleased by the recovery it’s seen in its premium Sports Fashion businesses in Europe with its combined businesses delivering a profit before tax and adjusted items of £92.6 million, up from £29.2 million. Organic sales at constant exchange rates rose 34%.
The performance of JD in Europe is also benefiting from actions taken to enhance the service proposition. This includes investing in local logistics capabilities in Southern Belgium and Northern France.
It sees a big long-term opportunity for JD in Europe and “we remain committed to expanding our physical retail presence in all markets at pace”. A net 58 new JD stores opened in the period across the continent.
In North America the company said it was "very much a year of two halves” with the H1 performance (particularly Q1) hurt by the well-publicised international supply chain challenges that affected supply of key shoe styles.
Given that 80% of total sales in North America are footwear, the problem was acute there. But trading improved rapidly through H2 as availability recovered and over the full period, there was growth in organic sales at constant exchange rates of 5%. North America “remains [its] most significant market in premium Sports Fashion in terms of revenues”.
Given the challenges, its impressive its North American premium Sports Fashion businesses delivered a profit before tax and adjusted items of £317.1 million, down only sightly from £322.2 million.
The roll-out of the JD fascia continues at pace with 138 stores trading as JD at the end of the period, up from 89. And it plans to accelerate the rollout of JD in North America with a target to deliver an additional 500-600 stores over the next five years. These will be both new sites and conversions of the remaining standalone Finish Line stores.
But it will “retain the Finish Line name as a concession in the Macy's department stores with a product offer which is more focused on families”.
The Shoe Palace and DTLR businesses also continue to make progress with seven new Shoe Palace stores and a net two new DTLR stores opened in the period. These continue to perform an important complementary role with their focus on consumers that are more neighbourhood-based.
APAC UPS AND DOWNS
In Asia Pacific, it “continues to make good progress” with its premium Sports Fashion businesses delivering profit before tax and adjusted items of £61.7 million, up from £36.6 million, and with growth in organic sales at constant exchange rates of 36%.
This was mainly due to "a continued excellent performance” in Australia. It has also made “a very encouraging start with three stores” in New Zealand.
Elsewhere, other markets, particularly Malaysia and Thailand, have seen a strong recovery with footfall progressively returning to pre-Covid levels.
But it has decided to exit South Korea as a market. Covid and lower tourism made a dent in its business there and it has been slow to recover.
The company also said its Outdoor business is recovering with growth in organic sales at constant exchange rates of 4%. It’s continuing to invest in stores in this category in the UK. However, the very hot summer last year did dent sales of higher-margin apparel and footwear ranges.
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