With the inclusion of the Go Outdoors stores acquired last year and continued progress at Blacks and Millets, the outdoor segment of the JD Sports Fashion group turned around to report an operating profit for the half-year until July 29.
Sales of the JD group's outdoor stores surged to £196.6 million (€223.6m-$264.8m) for the six months, up from £73.1 million for the year-ago period. Their gross profit margin dipped by 0.9 percentage points to 43.3 percent and they reported an operating profit of £0.1 million (€113,379-$133,968), compared with an operating loss of £2.3 million (€2.6m-$3.1m) for the year-ago period. This includes a charge of £1.9 million (€2.2m-$2.6m) for the start of the amortization of intangible assets on the brand names created upon the consolidation of the acquisition last year.
The improvement chiefly came from Go Outdoors, which delivered a profit of £4.0 million (€4.5m-$5.5m) from its trading activity, excluding the above amortization charge. This was about £1.6 million ahead of the equivalent in the year-ago period.
But the Blacks and Millets stores have continued to progress as well, both delivering growth in comparable store sales. Their operating loss was reduced to £1.6 million (€1.8m-$2.2m) for the six months, compared with a loss of £2.3 million.
JD Sports Fashion had to operate the Go Outdoors stores separately from its other outdoor stores for most of the period, as clearance from the competition authority was only issued in May. The group continues to anticipate that its outdoor stores will deliver stronger results as it starts to benefit from operational synergies.
JD Sports Fashion had 238 outdoor stores at the end of July, which was unchanged. The number of Blacks stores was reduced by one to 58 but exactly the opposite occurred with Go Outdoors, meaning that it ended the period with 59 stores. The numbers remained unchanged with 99 stores for Millets, 15 stores for Tiso and seven others.
The whole JD Group sharply raised its sales and profits for the half-year, due to openings across European and other international markets as well as higher comparable store sales.
With rises in both its sports and outdoor categories, the British retailer's turnover was up by another 41 percent to £1,367.2 million (€1,555.2m-$1,841.4m) for the half-year. The gross profit margin contracted by 0.7 percentage points to 47.4 percent, chiefly due to the impact of Brexit on the exchange rate of the pound, but the company raised its pre-tax profit by 33 percent to £102.7 million (€116.8m-$138.3m) for the half-year. JD Sports Fashion ended with profit of £81.1 million (€92.3m-$109.2m), up from £60.0 million.
The retailer owned at a majority by the Pentland Group said that sales in the second half so far have continued at similar levels as in the first half. It predicts that the year-end outcome will be at the end of market expectations that currently range from £268 million (€304.9m-$360.9m) to £290 million.
The retailer's sports fashion arm saw its sales increase by 30.4 percent to £1,170.6 million (€1,331.6m-$1,576.5m). Their average gross margin was down by 0.3 percentage point to 48.1 percent but the operating profit soared to £103.2 million (€117.4m-$139.0m), up from £79.9 million (€90.9m-$107.6m) for the year-ago period.
After three years of double-digit growth in comparable store sales, the sports fashion stores managed another rise of 3 percent in the U.K. and Ireland and 7 percent in the rest of Europe, despite a relative lack of prominent product launches.
Sales were pushed up by double-digit growth in sales of the JD websites, which have come to represent 13.7 percent of its turnover in the U.K. and Ireland, up by 2.6 percentage points.
The number of sports fashion stores in the JD group declined by 20 to 1,030 but this was due to the closure of 58 stores in the Benelux countries after the acquisition of assets of the Unlimited Sports Group, the former owner of Perry Sport and Aktiesport. The Dutch downsizing was more than compensated for in terms of turnover with sales from the eleven added JD stores in the U.K. and Ireland, and 23 in other European countriesThe group further expanded with five more Sprinter stores in Spain, where its business was particularly buoyant, and two Chausport stores in France. The group also had five JD stores in Malaysia and three in Australia at the end of the period. The expansion is continuing apace, as the British sports and outdoor retailer anticipates nearly one opening per week in continental Europe in the second half.
Meanwhile, the JD group is moving ahead with joining with Sport Zone in Spain and Portugal. About six months after it announced the intended deal, JD said it had reached an agreement to form an Iberian retailer with sales of about €450 million owned at a small majority by the British company. That makes it the second-largest sports retailer in Iberia behind Decathlon, with 204 stores in Spain and 107 in Portugal.
The conditional agreement integrates Sport Zone into JD Sprinter Holding (JDSH), a joint venture formed six years ago between JD Sports Fashion and the Spanish owners of Sprinter, a Spanish sports retailer. Under the deal, JD Sports Fashion will own 50 percent plus two shares in the enlarged JDSH. Another 30 percent less one share will be held by Sonae, the conglomerate that fully owns Sport Zone. The remaining 20 percent less one share will go to the Segarra family, the founders of Sprinter.
Sport Zone reported sales of €226.7 million last year and they generated earnings before interest, tax, depreciation and amortization of €37.2 million, excluding central costs. The Portuguese retailer has gross assets valued at €150.1 million and it reported a loss before tax of €27.7 million, but JD Sports Fashion said these figures would not be directly comparable to the ongoing business, mostly because of group charges and intra-group transactions. The stake of 30 percent less one share held by Sonae is a combination of several transactions, which are detailed in SGI Europe.
Another deal should take the JD banner into South Korea. The JD group has sealed a joint venture with Shoemarker (SMK), a South Korean footwear retailing group, allowing the British retailer to acquire a stake of 15 percent in a group of 23 stores trading as Hot-T, with an option to buy another 35 percent. JD Sports Fashion said it bought the initial 15 percent stake from SMK for about £5.5 million (€6.3m-$7.4m) and its call option to buy another 35 percent may be exercised at any time after the finalization of Hot-T's accounts for 2017.
The British company says it intends to exercise this option and to rebrand the Hot-T stores as JD. The outlets reported sales of 25.5 billion Korean won (€19.0m-$22.5m) and earnings before interest, tax, depreciation and amortization (Ebitda) worth KRW 3.0 billion (€2.2m-$2.7m) in 2016.