The outdoor division of JD Sports Fashion, comprising Blacks, Millets, Tiso and other outdoor retail operations in the U.K., became profitable in the full year to Jan. 28. While its turnover climbed by 27.6 percent to £198.1 million (€233.7m-$248.1m), the division reported an operating profit before exceptional items of £1.1 million (€1.3m-$1.4m), compared with a loss of £4.0 million for the previous year.
The figures include the acquisition of Go Outdoors, although the outdoor retailer did not have a material impact on the reported year because it was bought shortly before the end of the period. Go Outdoors slightly mitigated the favorable impact of reduced levels of discounts for the JD group's outdoor retail banners, but the division's gross margin still moved up by 0.4 percentage points to 43.7 percent.
The JD group simplified the management of Blacks and Millets, enhanced the camping offer and reduced markdowns. The company reports that Tiso stores also delivered a positive result and that the predominantly Scottish-based concept now has a stronger platform for further development, after dealing with the legacy of a number of underperforming stores. However, the group added that the breadth of supply from key outdoor brands into the market and the wide availability of vertically sourced product from specialist and other retailers mean the outdoor market will inevitably remain competitive.
JD's outdoor division ended the year with 238 stores, 56 more than at the end of the previous year. While Go Outdoors added 58 stores, the count was reduced by one store each for Blacks, down to 59, and for Tiso, which was left with 15 units. The number of Millets stores was unchanged at 99, and the same applies for Ultimate Outdoors with seven units.
Due to the takeover of Go Outdoors, the reported turnover of the JD Group's outdoor division could more than double for the current fiscal year. JD agreed to pay £112.3 million (€132.5m-$140.6m) for the chain and to assume net debt of about £11.4 million. It pointed to the complementary aspects of this business, which mostly runs out-of-town stores and is active in different categories, particularly cycling.
The JD group wants to combine strengths such as Go Outdoors' membership scheme with its own expertise in multi-channel retailing. However, the group pointed out that investments would be required in IT, logistics and infrastructure.The Competition and Markets Authority of the U.K. has set a deadline on May 18 for an initial decision on its investigation into the merger.
The entire JD group turned in a buoyant performance for the fiscal year, driven by avid demand for athleisure products as well as multiple store openings and acquisitions. The company reported a 31 percent increase in sales to £2,378.7 million (€2,806.7m-$2,978.6m), and its profit before tax and exceptional items was up by 56 percent to £244.8 million (€288.9m-$306.5m). Its profit before tax soared by 81 percent to £238.4 million (€281.3m-$298.5m).
The JD group pointed out that its results have improved by more than 190 percent over a three-year period. JD shares rose sharply upon the publication of the results, valuing the group nearly two and a half times as much as its rival, Sports Direct International (SDI).
JD Sports Fashion was helped by cultural trends pushing sales of fashionable sports gear around Europe, but the company emphasized that it managed to leverage this demand through investment in its retail concept and creative marketing. Peter Cowgill, JD Sports Fashion's executive chairman, said in a statement that it was well positioned for further profitable growth, despite external influences that may impact the latter part of the year, notably inflationary pressures arising from Brexit.
The Sports Fashion division reported a turnover of £2,180.5 million (€2,572.9m-$2,730.4m), up by 30.8 percent. Its gross margin was up by 0.4 percentage points to 49.4 percent, owing to lower markdowns and the stronger euro. The group added that it should manage to mitigate the negative impact of the weaker pound against the dollar this year. The division's operating profit before exceptional items jumped by 50.5 percent to £245.1 million (€289.2m-$306.9m).
The number of stores in the sports fashion entity expanded from 736 to 1,050, with openings and acquisitions, in the Netherlands and Portugal. The sales rise also includes a comparable sales increase of over 10 percent for the European stores in the group's Sports Fashion division – all the more remarkable given the comparable increases already achieved in the three previous years. The JD group reiterated that it would be unreasonable to expect comparable store sales growth to be maintained at this level for another year, but it pointed to other growth options in domestic and international markets. It has moved beyond Europe, into Malaysia and Australia, and has reinforced its management team to expand over a wide geography.
JD Sports Fashion is also investing in its warehouse in Kingsway, which was at the center of allegations regarding working practices last year. The company said it was greatly disappointed and it appointed Deloitte to conduct an independent review. It concluded that the allegations did not represent a balanced characterization of working practices at the facility.
JD has started a project to expand its internal use of the Kingsway warehouse site, at a projected cost of about £20 million (€23.6m-$25.0m) and an extension of about 32,700 square meters is to be handed over in spring 2018. The subsequent cost has been estimated at £42 million (€49.6m-$52.6m), although much of that should be incurred in the next fiscal year.
More on the sports fashion division in Sporting Goods Intelligence Europe.