Sales declined slightly to £204.1 million (€229.7m-$254.3m) in the outdoor stores of JD Sports Fashion during the first half of the group's financial year, ended on Aug. 3, leading to a pre-tax loss of £45.2 million (€50.9m-$56.3m) in the segment, which includes Blacks Outdoor, Millets, Go Outdoors, Tiso and other banners operating in the U.K.
Comparable store sales dropped by 6 percent in the segment. The gross margin fell by 2.5 per-centage points to 40.6 percent as compared to the year-ago period. The operating loss (Ebit) increased to £16.4 million (€18.6m-$20.5m) from £3.8 million, and it would have been higher without the introduction of new IFRS 16 accounting rules at the beginning of 2019.
Improved results at Blacks and Tiso were more than offset by a significant loss at Go Outdoors, the big chain acquired by JD three years. The loss was primarily due to a shift in its business model. Instead of getting replenishment products directly from its suppliers like before, Go Out-doors started to take them in the spring from a new third-party warehouse commissioned by the group in Middlewich, Cheshire in February.
JD, which uses a similar system for its more profitable generalist sporting goods stores, felt that the older system caused shortages in the availability of products at times of high consumer de-mand for them. The changeover had a temporary negative impact on the fulfilment of online or-ders and deliveries to the stores in the critical months of May and June. However, JD stated last month that it had resolved many of the issues, noting that same-store sales went up at Go Out-doors during the month of July.
Going forward, Blacks and Go Outdoors will have access to the same pool of inventories, but to prevent new problems, JD has decided to delay the transfer of Blacks' inventories from another warehouse in Kingsway to Middlewich until the beginning of 2020. The Kingsway facility is the primary warehouse of the JD group, and it is undergoing an extension with the installation of new automation equipment.
By Aug. 3, JD was operating a total of 252 outdoor stores under its various banners, after eight closures and seven new openings, covering a total of 2,644,000 square feet. The door count in-cludes 57 Blacks units, 101 Millets stores, 66 Go Outdoors locations plus 9 Go Outdoors Fishing stores, 13 Tisos and six Ultimate Outdoor stores.
By contrast, the total revenues of JD's Sports Fashion segment jumped by 53.7 percent to £2,517.1 million (€2,819.6m-$3,111.2m), leading to a pre-tax profit of £178.8 million (€201.2m-$222.8m). Comparable store sales in the segment rose by 9 percent in the brick-and-mortar retail channel, and they were up by 12 percent overall including online sales.
The acquisition last year of The Finish Line in the U.S. and solid increases in comparable store sales in its sporting goods chains around the world helped JD Sports Fashion to boost its total revenues by 47 percent to £2,721.2 million (€3,048.9m-$3,364.3m) in the 26-week period ended on Aug. 3. On a comparable accounting basis and before exceptional items, Ebitda rose by 37 percent to £235.2 million (€263.5m-$290.8m) and pre-tax earnings went up by 36 percent to £166.2 million (€186.2m-$205.5m).
The adoption of IFRS 16 accounting standards as of last January, which mainly affected the calculations for store leases, caused a one-time charge if £7.6 million (€8.6m-$9.5m). Adding exceptional charges of £28.7 million (€32.3m-$35.8m), booked primarily for the Go Outdoors chain in the U.K., the company had to report an increase in pre-tax profit of only 6 percent to £129.9 million (€145.5m-$160.6m) for the period.
Because of the lease adjustments, the management predicts that the company's results for the current financial year will more or less hit the mid-point of the range of £402 million to £424 million (€454m-$500m to €479m-$527m) projected by financial analysts. Otherwise, they would reach the top range of the forecast.
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