While reporting record results for the financial year ended on Feb. 1, JD Sports Fashion indicated that it will slow down the pace of new store openings, making them partly dependent on the “rental realism” of landlords.

The increasingly international sports and outdoor retailer based in the U.K. reported a 3 percent rise in pre-tax profit to £348.5 million (€387.9m-$437.9m) for the year as total revenues rose by 30 percent to £6.11 billion (€6.80bn-$7.68bn), largely due to the acquisition of The Finish Line in the U.S.

Stripping out exceptional items of £90.3 million (€100.5m-$113.5m), group Ebitda went up by 28 percent to £623.6 million (€693.9m-$783.6m) and pre-tax profit increased by more than £110 million to £465.6 million (€518.1m-$585.1m). The gross margin improved by 0.7 percentage points to 42.9 percent on a pro-forma basis.

Led by the JD Sports banner, the sports fashion segment continued to perform much better than the outdoor segment, where the troubles at Go Outdoors led to a wider operating loss (Ebit) of £16.3 million (€18.1m-$20.5m) on lower revenues of £414 million (€460.7m-$520.3m) in spite of a profit turnaround at the Blacks and Millets chain, thanks to higher online sales.

As previously reported, Go Outdoors last month went into a so-called “pre-pack” administration before being repurchased by the group for £56.5 million (€62.9m-$71.0m). One reason for the move was the “extremely inflexible” nature of the chain’s store leases. More on the Outdoor segment of JD in our Outdoor Industry Compass.

The Sports Fashion segment generated operating profits of £533 million (€593.2m-$669.9m), up from £365.8 million a year earlier, on revenues of £5,698.8 million (€6,342.5m-$7,162.5m), compared with £4,296.4 million in 2018/19.

A positive factor was the contribution of an operating profit of £94.2 million (€104.8m-$118.4m) from the combined Finish Line and JD businesses in the U.S. for the full year, compared with £26.6 million in the prior financial year for the 33-week period that followed the U.S. chain’s acquisition. On a comparable store basis, sales went up by 9 percent in the U.S. excluding concessions at Macy’s department stores.

In the U.K. and Ireland, the 10 percent increase on a same-store basis reported for the first half continued through the end of the financial year. In the rest of Europe, JD enjoyed another year of double-digit growth on a comparable store basis, compounded by an increase of 52 units in the total net number of stores, which fulfilled the group’s ambition to open on average one store per week across the region.

Following the recent start-up of its first store in Austria, JD now has a presence in 11 countries across Europe. The group ended the past financial year with a total of 2,263 stores, up from 2,167 a year earlier, Including 402 JD stores in the U.K. and Ireland, 304 in the rest of Europe, 64 in Asia-Pacific and 11 in the U.S. The number of Size? sneaker shops was reduced from 41 to 37. The number of stores trading under other banners, including Sprinter and Sport Zone in Iberia, increased to 153 in the U.K. but declined to 427 in the rest of Europe. The Finish Line had 508 stores in the U.S. and 295 concessions at Macy’s.

In the Asia-Pacific region, the number of stores went up by 18 units to a total of 66. That includes a network of 24 stores in Australia and 19 stores in South Korea. The number of stores in Singapore and Thailand doubled, with four units now operating in each of the two countries. JD divested its Glue business in Australia. It mentioned a positive performance in Malaysia.

The group’s Premium Fashion and Gyms businesses developed favorably in the past year. JD had 30 gyms with about 158,000 members in the U.K. by the end of the year.

JD confirmed it has applied for a judicial review against a ruling from the U.K.’s Competition and Markets Authority (CMA) blocking its £86 million acquisition of the 69-store Footasylum chain. The application for a judicial review will run parallel with the divestment process, during which the two businesses will be run separately.

An uncertain outlook and a slowdown in expansion

JD is still planning to open flagship stores before the end of the summer on Paris’ central rue de Rivoli and on Times Square in New York. It is entering the Canadian market through its recent acquisition of Onepointfive Ventures, consisting of four full-priced stores and a web store for surplus merchandise.

However, the management said that it will slow down the implementation of certain other projects in Europe and elsewhere in view of the social distancing requirements dictated by local authorities, which will mainly affect its smaller stores. The management expressed concern at the effect of these measures on the group’s business at weekends, during school holidays and the pre-Christmas shopping period.

JD said it will be investing further in its main warehouse in Kingsway, Rochdale, including structural improvements intended to remove bottlenecks, noting that it is “inevitable” that some business will permanently shift from brick-and-mortar stores to online.

Without providing figures, JD said that its online business delivered a “very resilient” performance during the recent retail lockdowns, although social distancing measures limited the number of people that could work at Kingsway at the same time.

Meanwhile, as planned, the company has opened an 80,000-square-foot warehouse in Belgium that covers a total of 280,000 sqft. including mezzanines. It is starting to supply product to some of the group’s stores in Continental Europe.

The company warned of “considerable uncertainty” around the effect of the Covid-19 pandemic on consumer behavior, admitting that it will have a “material impact” on its results for the current fiscal year.

After the retail lockdowns, which led to the shutdown of 98 percent of its stores in 14 countries by March 28, customer traffic has been weaker than before in malls and shopping centers, especially in Northern Europe at weekends, as customers are still nervous about the risks associated with densely occupied enclosed spaces. Conversions have been higher, however, as customers have been browsing less through the internet.

The group’s executive chairman, Peter Cowgill, said the uncertain outlook means future store investments will be “highly dependent on rental realism and lease flexibility” on the part of the landlords.

“Recognising that rents effectively buy footfall, we will continue to push for greater correlation between levels of footfall and rents payable across our physical retail estate,” Cowgill said. He later told The Telegraph that strong tenants who attract customer traffic should not be subsidizing the weaker tenants. He said he was “tired of sitting next door to occupants who are paying 30-40% less for the same box because they have a lease break or an expiry or have gone through an insolvency process.”

Still, he expressed his firm belief that the company is “well placed to regain our previous momentum” and that it has the necessary flexibility and agility to prosper in “a retail environment that may see profound and permanent structural change.”

The group ended the past financial year with net cash of £429.9 million (€478.4m-$540.2m), up considerably from £125.2 million a year earlier. JD confirmed that no final dividend will be paid, adding that dividend growth will be restrained when payouts are resumed in order to maximize funding for future development opportunities.