JD Sports continues to surge, store expansion and margin growth boost sales, profits
today Sep 11, 2018
It was a good first half for fast-expanding sport-to-lifestyle retailer JD Sports Fashion as the company said on Tuesday that the 26 weeks to August 4 produced record figures and that the second half has started with sales trends similar to the first.
Looking at the numbers at a time when so many in the fashion sector are struggling means even the most numbers-averse reader can’t fail to be impressed: revenue rose 35% to £1.846 billion, gross profit was 48.2%, up from 47.4%; profit on an Ebitda basis was up 26% to £171.8 million; and pre-tax profit rose 19% to £121.9 million.
So what was behind the growth surge? Well, clearly the company sold plenty of product and managed to squeeze more sales out of its existing space as like-for-like sales rose an “encouraging” 3% against a tough UK background. And profitability in the core UK and Ireland Sports Fascias division was further enhanced with margins increased.
But the company also generated higher sales by expanding its store footprint with more space in the UK, a net increase of 18 new JD stores across mainland Europe and 21 in the Asia Pacific region, including first stores in South Korea and Singapore and additional stores in both Malaysia and Australia.
And the acquisition of Finish Line in the US further significantly extended its global reach, even though the Finish Line contribution to this period was negligible. But the US business should have a huge impact from here and the firm has big plans for that country with a trial of the JD chain to start in the second half.
Executive chairman Peter Cowgill said sales to date in the second half have continued at similar levels to those in the first, “supporting our continued confidence in the robustness of the JD proposition.”
He also had some interesting things to say about physical retail with JD committed to bricks and mortar stores and believing they have real relevance for the future. “We firmly expect online to further increase its share of overall sales in our core UK and Ireland markets,” he said, but “the often social nature of consumers' shopping trips and impulsive nature of their buying decisions combined with the importance of cash to a high proportion of our demographic, means that we expect physical retail to retain most of its current level of importance.
“The store base remains essential to brand awareness, the customer's desire to see, handle and try the product, and our ability to provide multiple delivery points. Consequently, we do not anticipate a material movement in the size of our store base in the UK and Ireland, although we continue to work with landlords on ensuring that our portfolio of leases has the maximum flexibility and the lowest committed cost possible.”
He also said that the profits improvement wasn’t just about higher sales but better margins in the UK: “We have maintained an intensely rigorous approach to managing sell-throughs and made a deliberate decision not to enter into short-term reactive discounting unnecessarily when our proposition remains well differentiated.”
Further afield than the UK, in Iberia it continues to work on the integration of the Sport Zone chain into the Sprinter commercial operations and in Asia Pacific, it plans to open more new stores in H2 with its first locations in Thailand due to open soon.
And in the US, that test of the JD banner there is going to begin with a small trial ahead of the peak Holiday trading period. Another small trial “focused on elevating the customer experience in Finish Line stores by leveraging JD's recognised global market-leading standards in Sports Fashion visual merchandising” is also ongoing.
Meanwhile, its premium brand Fashion businesses remain “an important part of [the] overall elevated offering to consumers.” It said “we continue to expand our presence in this area,” without going into details.
It also said that its Outdoor business had a “difficult first half overall,” although it said it’s encouraging that Ebitda remains positive. “These fascias are heavily influenced by the weather and after a promising first quarter when our Outdoor fascias benefitted from the late winter,” it explained “they have all had an extremely challenging Q2 with good growth in sales of lightweight shorts and T-shirts nowhere near able to compensate for a significant and understandable decline in jackets and other waterproof apparel.” But it sees this as a one-off situation and remains upbeat on the sector’s prospects.
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