JD Sports Fashion reported a profit before exceptional items and taxes of 439.5 million pounds (€515.1m-$608.8m) for the first half ended July 31, up sharply from £61.9 million in the same period a year ago, as acquisitions, the U.S. government’s stimulus package and pent-up demand allowed it to rebound strongly from the impact a year earlier on sales and profits from the Covid-19 lockdowns. The profit figure was also comfortably above the £158.6 million seen in the first half of 2019 before the pandemic struck.
The U.K.-based retailer now expects pre-tax earnings for the full year of at least £750 million (€878.7m -$1,038.7m), up from its previous guidance of at least £550 million (€644.4m-$761.7m). That outlook takes into account adverse factors such as continued supply chain strains, Brexit-related administrative difficulties and duties, and the lack of U.S. stimulus payments in the last six months of its fiscal year.
“The group continues to demonstrate outstanding resilience in the face of numerous challenges arising from the continued prevalence of the Covid-19 pandemic in many countries, widespread strain on international logistics and other supply chain challenges, materially lower levels of footfall into stores in many countries after reopening and the ongoing administrative and cost consequences resulting from the loss of tariff free, frictionless trade with the European Union,” said Peter Cowgill, executive chairman.
In the first half, the core JD Sports business in the U.K. and Ireland generated a profit before exceptional items and taxes of £170.8 million (€200.1m-$236.6m), up from £52.0 million the year-earlier period and £114.9 million in the first half of 2019. The U.K. and Irish markets were characterized by a strong retention of sales through digital channels in the first quarter, when stores were temporarily closed, combined with strong-pent up demand after reopening.
The company’s banners in the U.S. posted a combined profit before exceptional items and taxes of £245.0 million (€287.1m-$339.4m), boosted by a second round of U.S. stimulus payments to consumers as well as a total contribution to the profit figure of £72.9 million (€85.4m-$101.0m) from the recently acquired Shoe Palace and DLTR businesses. This was sharply above the profits of £73.4 million and £35.7 million registered in the same periods of 2020 and 2019, respectively.
In addition to the two newly acquired chains in the U.S., there are now 66 stores operating under the JD banners in the country. In the course of the first half, the group opened 21 new JD stores in Western Europe, four new JD stores in Austria and two new ones in Thailand.
The group’s overall gross margin in the first half widened to 48.5 percent from 45.6 percent the year earlier, largely as a result of a stronger margin in the U.S., where it expanded to 49.7 percent from 44.5 percent, as strong demand resulting from stimulus payments drove lower levels of promotional activity in the market as compared to previous years. The group’s Ebitda jumped by 121 percent to £746.4 million (€874.5m-$1,034.1m). Excluding exceptional items, Ebitda grew to £471.7 million (€552.9m -$653.5m) from £95.4 million.
The outdoor segment returned to profitability, with a profit before exceptional items and tax of £10.8 million (€12.7m-$15.0m) against a loss of £16.8 million the year earlier. The gross margin increased to 44.3 percent from 40.5 percent while the segment’s revenues increased to £235.2 million (€275.7m-$325.9m) from £142.5 million.
The core Sports Fashion segment saw profit before exceptional items and tax increase to £432.1 million (€506.6m-$598.7m) from £81.6 million the year earlier, with the gross margin rising to 48.8 percent from 45.9 percent. Revenues in this segment climbed to £3,650.8 million (€4,729.3m-$5,075.8m) from £2,402.4 million.
Total revenues in the six-month period grew by 52 percent to £3,885.8 million (€4,553.9m-$5,384.0m) compared with £2,544.9 million the year earlier, supported by the addition of Shoe Palace and DLTR in the U.S. as well as the Polish-based Marketing Investment Group (MIG), whose acquisition in April 2021 marked the company’s entry into Eastern Europe.
Despite its strong first half showing, JD said its board is not recommending the payment of an interim dividend given the potential for further trading restrictions in the usual peak trading period prior to Christmas. However, it added that it could consider the payment of a larger final dividend on the basis of its performance for the full financial year.
To further reduce its exposure to the negative consequences of Brexit and as its business in Western Europe increases in scale and complexity, JD said it is in the process of finalizing legal contracts for the lease of a 620,000-square-foot facility in Heelen, in the southeastern part of the Netherlands,whose construction is already underway. That facility is expected to process substantially all the shipments for stores and online orders in Western Europe, going live by the autumn of 2023 and becoming fully operational by the middle of 2024.
The new project will follow the opening of an 80,000-square-foot warehouse in southern Belgium in the autumn of 2020. In the longer term, JD expects the new Dutch facility to be complemented by smaller regional hubs near major urban areas.
Pending the implementation of the new Continental European logistics set-up, the company has signed a short term lease on a 115,000-square-foot facility located in Lille, in northern France, which will be dedicated to processing online orders for a number of countries in mainland Europe.
In the U.K., meanwhile, the initial start-up of a planned new 515,000-square-foot facility in Derby for the fulfilment of JD online orders in the country is anticipated for the autumn of 2022.
JD reiterated that it was “very disappointed” by the Sept. 2 decision by the UK’s Competition and Markets Authority (CMA), confirming its intention to prohibit JD’s acquisition of Footasylum. “The CMA’s findings are, however, provisional and JD remains committed to its transaction goal of improving Footasylum’s resources, access to product and differentiated customer proposition.” JD said it would continue to “make its case strongly” to the CMA ahead of the regulator’s release of its final report on that deal in October.
