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JD Sports powers to strong first half, UK, Europe and US all look good

Published
today Sep 10, 2019
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JD Sports’ half-year results were out on Tuesday and it was yet another example of a business that seems to be getting almost everything right at present. It still has a few issues though, and while the company reaffirmed its commitment to physical stores, it did fire a warning shot at landlords, saying it was seeking “fairness and flexibility in the terms of our leases.


JD Sports continues to prosper - Sandra Halliday


But more of that later. For now, just look at these numbers from the self-styled 'King of Trainers': group revenue rose 47% to £2.721bn with strong total like-for-like sales growth in its global Sports Fashion chains of 12%, including “highly encouraging growth of more than 10%” in the core UK and Ireland Sports chains.

Of course, that 47% increase has to factor in businesses that the brand has acquired and that boosted its half-year sales figures. They include stakes in or control of Rascal Clothing and Footasylum (both acquired in February), Pretty Green and Giulio Fashion (both bought in April), and Finish Line (bought part-way through the first half last year). But even with these purchases, there’s no denying that the 26 weeks to August 3 were good for the firm, and looked even better considering how bad they were for so many of its rivals.

The company said group EBITDA on a comparable accounting basis increased by 37% to £235.2m and profit before tax and exceptional items on a comparable basis rose 36% to £166.2m. Reported pre-tax profit rose 6.6% to £129.9m after certain adjustments.

Executive chairman Peter Cowgill was justifiably upbeat, saying he was “very pleased”, especially against the “backdrop of widely reported retail challenges in the UK”. And he added that it’s “extremely encouraging that JD has delivered improved conversion, reflecting consumers' increasingly positive reaction to our elevated multichannel proposition where a unique and constantly evolving sports and fashion premium brand offer is presented in a vibrant retail theatre with innovative digital technology.

And importantly, he said that the firm has seen continued positive trends to date in the second half in Sports Fashion”, although he recognised “the tougher comparatives ahead”.

It all means that without the new accounting standards that are being applied, the company would have been on track to deliver headline profit before tax for the full year at the top end of market expectations of £402m to £424m. But after adjusting for the impact of the transition to IFRS 16, it’s predicting results to be in the “mid-point of expectations”.

UK PHYSICAL STORES

JD in the UK and Ireland saw that 10% comp sales rise mentioned earlier but we can’t ignore what’s happening in the UK more widely and the company referred to the current situation where many retailers are entering CVAs and winning more favourable rent deals. 

It said: “We are very aware of the financial benefit that other retailers appear to get when they downsize their estates and, whilst we have no plans to fundamentally alter the size of the JD store network in the UK at this time, we continue to seek fairness and flexibility in the terms of our leases.” That will be an interesting story to watch.


JD Sports has made the most of the athleisure trend - Sandra Halliday



And while the JD chain is clearly on a roll, it’s not all perfect in the UK. It was yet another “challenging period” for the Outdoor businesses and while it was pleased with the positive trading and improved results in the Blacks and Tiso businesses, these gains were overshadowed by a "significant loss" in the larger Go Outdoors operation. 

Plus there are those acquired businesses like Pretty Green and Footasylum that need to be integrated, although the firm seems upbeat on their prospects.

GLOBAL GROUP

JD is more than just a UK retailer though, and internationally, it “made further significant progress” with the JD chain itself and added 31 new stores to its tally.

In Europe, it "continues to gain momentum with a further double-digit increase in total like-for-like sales with new stores in most of our existing territories together with our first JD store in Austria.” The new stores included the conversion of six former Chausport stores in France in locations “where we believe that the JD proposition is more appropriate to the particular local market.”

It now has a presence in 11 countries in mainland Europe and is “increasingly confident that JD is developing the same emotional resonance with consumers in Europe as it is in its core UK and Ireland market.” It has also now committed to a flagship store in the centre of Paris on the Rue De Rivoli with fit-out starting in the New Year.

In Asia Pacific, the company added stores in Malaysia, Australia and Singapore, the slower pace of openings reflecting the availability of property, rather than any other issues.

In the US, it has opened its sixth JD store after the conversion of the former Finish Line store in the Mall of America at Bloomington, Minnesota. These JD stores now have digital support following the launch of a trading website in May. It may convert an additional small number of Finish Line stores to JD in the second half. And next year, it will start to open stores organically in the major metropolitan areas with work starting recently on the fit-out of a flagship store in Times Square, New York, which is currently scheduled to open in spring 2020. 

As for Finish Line in the US, it continues to see “an opportunity to deliver a sustained improvement in the performance” as it boosts sales densities via extended ranges, improves margins via buying discipline and markdown management, closes underperforming stores, and controls costs.

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