Sports Direct International decided at its general meeting in London on Dec. 16 to change its name to Frasers Group, as its £90 million (€105.1m-$116.5m) acquisition in August 2018 of House of Fraser, the embattled British department store chain, is adding a new dimension to the company that Mike Ashley started in 1982 with the opening of a Mike Ashley Sports store. 

After building up to 12 stores, the operation was renamed Sports Soccer. Sports retail still represents more than half of the group’s total turnover, but its Premium Lifestyle segment is gaining ground as part of an overall trading-up strategy.

The acquisition of House of Fraser and other operations helped SDI to book a 14.0 percent increase to £2,043.5 million (€2,386.1m-$2,646.6m) in total revenues for the six months ended on Oct. 27. Excluding acquisitions, however, they decreased by 6.4 percent, including declines of 8.6 percent in the UK Sports Retail segment, 6.1 percent in European Retail and 12.5 percent in the Rest of the World.

The declines were attributed mainly the group’s “elevation strategy,” consisting in upgrading the look of certain sports stores, partly in an effort to obtain better products from the premium sports brands. This strategy, combined with improved hedging on the U.S. dollar and an improved product mix, allowed the gross margin in Sports Retail to improve by 2.8 percentage points to 43.4 percent. The company says it is still targeting the opening of about 10 to 15 “elevated” sports stores in the U.S. before the end of the current financial year.

Adding acquisitions, the UK Sports Retail segment raised its total sales by 6.7 percent to £1,140.2 million (€1,331.7m-$1,477.1m), representing 59 percent of the group’s turnover. The segment includes the group’s Sports Direct and USC stores in the U.K., its fitness division and the U.K. operations of numerous brands acquired in the last 18 months - Evans Cycles, Jack Wills, Game Digital and Sofa.com - including Heatons’ stores in Northern Ireland.

After buying a stake of about 30 percent in Game Digital, SDI took control of British video games retailer in July. The group has started to integrate its Belong e-sports arenas in some of its own stores and plans to open up a total of ten such arenas in the course of the current financial year. After taking over the assets of Jack Wills, a British casual sportswear brand, SDI plans to offer it in its USC and House of Fraser stores.

Game Digital contributed a loss on revenues of £133.9 million (€156.4m-$173.5m) during the first half of SDI’s financial year. Combined with increases of 9.7 in store wages, 9.3 percent in rental fees and 34.9 percent in other costs, largely related to the multiple acquisitions, the UK Sport Retail segment’s underlying Ebitda declined by 5.3 percent to £139.9 million (€163.4m-$181.2m).

Conversely, the underlying Ebitda in the group’s Premium Lifestyle segment improved by 80.7 percent with a loss of £5.6 million (€6.5m-$7.3m) against a loss of £29.0 million in the year-ago period. Its sales jumped by 79.2 percent to £282.6 million (€330.0m-$366.0m), largely due to higher sales at its Flannels offline and online stores and a full 26 weeks of revenues at House of Fraser. The segment’s gross margin increased by 5.8 percentage points to 36.8 percent.

Representing 17.9 percent of sales, the European Retail segment includes the company’s sports stores in other parts of Europe including Belgium, Austria and the Baltic countries, plus Game Digital’s stores in Spain. Its revenues increased by 16.7 percent to £365.5 million (€426.8m-$473.4m) in the first half, but they fell by 6.1 percent on a comparable, currency-neutral basis, which SDI attributed to a move to higher-priced, higher-margin products.

The segment’s gross margin declined by 2.1 percentage points to 41.4 percent, but excluding acquisitions, it was up by 1.8 percentage points. While store wages went up by 3.9 percent and store rentals rose by 20.6 percent, other costs dropped by 19.4 percent, leading the underlying Ebitda improved by 71.4 percent to £32.9 million (€38.4m-$42.6m).

Retail in the Rest of the World consists of the revenues of Bob’s and Eastern Mountain Sports, the two U.S. sports retail chains acquired in May 2018, plus the Sports Direct stores in Malaysia. Overall, these operations showed sales declines of 8.5 percent in pounds and 12.5 percent in local currencies, down to £92.1 million (€107.6m-$119.3m). This was largely due to the closure of three of the 30 Bob’s stores and one of the 21 EMS stores that were in operation one year ago. The number of SD stores in Malaysia increased from 30 to 33.

The gross margin dropped by 0.5 percentage points to 39.4 percent in this segment, but with wage and other costs falling by 5.6 percent and 30.5 percent, respectively, the segment’s underlying Ebitda improved by 49.0 percent, resulting in a loss of £2.5 million (€2.9m-$3.2m) versus £4.9 million in the year-ago period.

The newly named Frasers Group also reported a 4.4 percent increase in underlying Ebitda to £16.5 million (€19.3m-$21.4m) for its Wholesale & Licensing division on 14.9 percent higher revenues of £92.0 million (€107.4m-$119.2m). The segment comprises the brands that it sells as licenses, including Donnay, Slazenger, Firetrap, Everlast, Kangol, Karrimor and Lonsdale.

Overall, the group’s underlying Ebitda went up by 21.8 percent to £181.2 million (€211.6m-$234.7m) in the first half of the group’s financial year. The underlying pre-tax profit rose by 58.1 percent to £101.8 million (€118.9m-$131.8m) and earnings per share doubled, following share buybacks.

A major factor was an extraordinary gain of £90.4 million (€105.6m-$117.1m) on the sale of properties, notably the group’s headquarters in Shirebrook. Combined with cash flow, it also helped the company to reduce its net debt to £254.4 million (€297.1m-$329.5m) from £505.5 million a year earlier.

The management credited the company’s access to higher-margin products and the establishment of improved process and procedures for the progress. On the other hand, it acknowledged the challenge of a “significant” sales tax investigation in Belgium, adding that it should lead to no material liabilities based on the information obtained so far.

It also pointed out that House of Fraser’s business has not yet been fully integrated. Nevertheless, the management expects that the group’s underlying Ebitda to increase by between 5 and 15 percent for the full year.