JD Sports takes pandemic hit but remains strong globally, sees US surge
Retail giant JD Sports’ results on Tuesday showed that some chains are bouncing back from the near-crushing blow of the Covid lockdown but that even the strongest retailers are nowhere near normal.
The company said it’s “generally encouraged” by its performance since its stores reopened and by trading in the first few weeks of the second half.
But it added that “retail footfall remains comparatively weak and the recent strengthening of [anti-Covid] measures in many countries and the subsequent temporary closure of some stores reminds us that Covid-19 remains an ongoing challenge”.
Yet it’s still “absolutely confident in our strengths in consumer engagement, key brand relationships and globally consistent multichannel retail standards”.
And it even reinstated its full-year guidance saying it expects to deliver a headline profit before tax for the full year of at least £265 million on an IFRS16 basis.
THE FIRST HALF
So that’s now. But what happened in the first half, the 26 weeks to August 1? Revenue fell from £2.721 billion a year ago to £2.544 billion (again, on an IFRS16 basis). That was a 6.5% drop and came as the Sports Fashion unit reduced by 4.6% to £2.402 billion and Outdoor reduced by 30.2% to £142.5 million.
The firm’s gross profit was down from 46.9% to 45.6%. EBITDA was £337 million, which was much lower than the £402.9 million of a year earlier. Pre-tax/pre-exceptionals profit fell to £61.9 million from £158.6 million and reported pre-tax profit was a mere £41.5 million after £129.9 million a year ago.
So the firm was clearly hit by the pandemic and its after-effects, but it said it managed a “significant retention of sales [that] reflects consumers' fundamental affinity and loyalty to the JD brand”. And its omnichannel strength “ensured that consumers across all markets enjoyed a consistent experience when switching from offline to online channels”.
The reduction in profitability was largely due to “the additional costs associated with this shift in revenues to online channels, particularly during period of temporary store closures”.
But it saw an “excellent performance in the United States with Finish Line and JD capitalising fully on the enhanced consumer demand consequent to the US Government fiscal stimulus, which expired on 31 July”.
And its small test warehouse in Belgium is now operational, providing “significant learnings which are being used to shape the group's long-term supply chain strategy for Europe”.
Executive chairman Peter Cowgill said: “Continuing outbreaks of the virus and periodic strengthening of public safety measures in a number of our global territories, including forced temporary store closures and the ongoing requirement to maintain strict social distancing in our warehouses, makes us cognisant that further challenges lie ahead.
“Ultimately, given the unique circumstances of this trading period, we are reassured by the strength of the JD brand as demonstrated by the retention of more than 90% of the total revenues”.
Looking back to the pre-pandemic period, the company said the early weeks of the half “were encouraging with the continuation of the positive trends from the previous year in many territories”.
But with most of its stores globally shut for up to three months, it was never going to escape unscathed. However, “demand remained resilient” and across the countries where it had to temporarily close stores, approximately 60% of the combined store and online revenues from the prior year were retained through the closure period.
This was key as it both enabled it to turn stock and generate cash while also ensuring that it maintained its long-term relationship and engagement with consumers.
Initial trading in stores on reopening was boosted by a combination of pent-up demand (particularly in those territories where online trading is less mature) and promotional activity as the stores reopened with ‘old’ stock on the shelves that had to be cleared. But that boost was “generally short-lived with footfall in physical retail continuing to be significantly weaker than historic levels in all of our geographies but particularly across Europe. Some of the weakness in footfall has been offset through better conversion and higher average transaction values as those consumers who visited physical retail did so with greater intent”.
On average across those territories that saw temporary store closures, total revenues across physical and digital channels for the period from reopening to the end of the first half were around 20% ahead of the same period in the prior year. However, this has been very heavily influenced by growth in the US of nearly 50%, which is “exceptional and was driven by significant, but temporary, fiscal stimulus”. Excluding the US, the composite total revenue growth from reopening to the end of the period across the remaining territories was approximately 10%.
Yet that’s a figure many of its peers would envy so it seems that JD Sports is likely to be among the eventual winners when the total fallout from the pandemic can be assessed.
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