JD Sports breaks records as athleisure and online tailwinds boost its brand appeal
In sports, it’s all about winning and JD Sports Fashion certainly looked to be winning the sales and profits race in the year to January 28.
The company has prospered on the athleisure trend, has made the most of digital opportunities and invested heavily in making sure that its stores and e-stores are where brands want to sell their goods.
All that meant that on Tuesday morning the sports-to-outdoor brands retailer unveiled a raft of winning numbers. They included revenue up 31% to £2.378 billion, operating profit before tax and exceptional items up 56% to £244.8 million, and pre-tax profit up 81% to £238.3 million.
So did that earn it a place on the winners’ rostrum? It certainly looks like it did, although there was one sour note. The company is still reeling from allegations of bad working practices aired in a Channel 4 documentary at its Kingsway, Lancashire, warehouse where it employs over 1,000 people. But it struck a positive tone on Tuesday.
JD said after calling in Deloitte to conduct an independent investigation, “Deloitte’s conclusion was that the allegations did not represent a balanced characterisation of working practices at Kingsway.”
But it added: ”As before, we remain committed to continually reviewing and implementing improvements in day to day procedures there.”
Apart from that issue, the Tuesday results statement was was virtually one long victory parade, even though JD said that the prospect of Brexit and the weaker pound are hurdles that have to be overcome.
Its sales and profit figures hit record levels as it grew its store count at home and abroad. During the year it accelerated its European development, opening 54 more JD Sport stores and it also wrestled more sales out of its existing square footage with a third consecutive year of comparable sales growth in its Sports Fashion ops.
And with the first Australian JD store set to open soon, a further two stores debuting in Malaysia, and major developments in Spain and Portugal, it looks set for continued strong sales growth.
But what about the previously ailing outdoor division? The company said that its Blacks and Millets chains delivered “a positive result for the first time” and the acquisition of the major Go Outdoors business will further develop its overall outdoors proposition.
This acquisition last November was crucial because its 58 UK stores, mainly located outside city centres, mean it can be active in a range of categories where the group either had no presence or only a limited presence, including the growing cycling category.
Executive chairman Peter Cowgill was understandably upbeat, citing a pre-tax profits improvement of more than 190% in the last three years. He also said the foundation of the group’s success remains its core Sports Fashion fascias.
He acknowledged that the company has been boosted by the athleisure trend in the past few seasons but said that the company has done the right things to prosper, even without that favourable tailwind: “The key to our success in recent years has been the way that we have leveraged these favourable market conditions with our strengthening profitability, a payback for the investments we have made over a number of years to develop the JD retail concept and strengthen our core commercial practices.”
And he said the group continues to invest in key areas, particularly visual merchandising systems, in-store environment and creative marketing as he believes that it is crucial to ensuring brands want to be sold in its stores.
“JD’s market leading standards in these areas… resonate with an increasing number of brands,” he explained. “Having flexibility in our brand line up is critical and enables us to maintain a trend-appropriate assortment.”
He added that international growth remains a clear strategic focus, although the UK's vote to leave the EU “means that there will be some uncertainties for the immediately foreseeable future.”
There was no uncertainty over the strength of its Sports Fashion operation, which had “an exceptional year” with operating profits (before exceptional items) increasing by 50% to £245 million. Comparable store sales growth in the period across its European chains was over 10%.
And it expects more strong growth, boosted by store openings and acquisitions. Not that all its purchases will be instantly sales-boosting. In March it acquired the trade and store assets of the failed Aktiesport and Perry Sport retail chains in the Netherlands. The company said Tuesday that the turnaround of this business is “very much an ongoing exercise.”
But elsewhere in Europe the picture was rosier. Its Chausport and Sprinter businesses both benefitted last year from the continuation of “favourable market trends”. Meanwhile its deal to create an Iberian Sports Retail Group combining its businesses in Spain and Portugal with the Sport Zone business of Sonae, should put a rocket under its sales there.
The company also said it’s pleased with the positive performance in its principal fashion businesses, in particular Tessuti, “which is gaining momentum and regional presence following the acquisition of stores which traded as Infinities, Aspecto, ML Clothing and Xile.”
And Mainline Menswear, which is an online retailer of premium fashion brands, has also performed “exceptionally well”,while the Scotts business has also maintained its profitability after strong growth in the previous year.
JD expects further positive developments in its Fashion businesses in the current financial year as it builds on its “previous investments to create strong relationships with the major global premium brands.”
It also expects online sales to continue growing. The company said that the customers in its core JD chain are extremely digitally aware with a high propensity to use social media in their purchasing decisions. So it continues to invest heavily in “creating a technology-rich multichannel environment which not only provides the customer with information about the product but also helps increase the desire to purchase.”
This digitally integrated approach gives positive benefits to its stores as well as its trading websites with online sales now representing 13.2% of total chain sales in JD's principal UK and Ireland market, up from 10.4% a year earlier.
Was there any bad news from the Sports Fashion operation? It might not seem to at first glance but there could be headwinds slowing it down in the future. The overall gross margin in Sports Fashion was slightly higher in 2016 than the previous year, reflecting continuing low markdown levels. It also reflected the impact of the stronger euro on JD's euro denominated businesses, where product is sourced and distributed from the UK.
But the weakening of sterling against the US dollar after the Brexit vote could hurt the margin in 2017, although the company said it’s “working with our global brand partners… to mitigate against these [headwinds].”
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