JD Sports doubles profits but sees flat earnings this year

U.K. retailer JD Sports Fashion has more than doubled annual profits but warns that inflationary headwinds mean that earnings could stand still in the current financial year. It has also highlighted governance issues under the regime of former chairman and chief executive Peter Cowgill, who was abruptly ousted last month. JD Sports now plans to split the roles and says it is looking at a number of “high caliber” candidates for the CEO post.

The company posted pre-tax profits of £654.7 million (€760.5m) for the year to Jan. 29, up from £324 million a year earlier, driven by strong performances in the U.K., Ireland and North America. Revenue rose to £8.5 billion (€9.8bn) from £6.1 billion. Gross margins in the core sports fashion division increased to 49.5 percent from 48.4 percent, thanks to a stronger margin in the U.S. as inventories were depleted and promotional activity decreased. However, interim chair Helen Ashton warned of economic headwinds from supply chain constraints and soaring inflation. “Whilst we are encouraged by the resilient nature of the consumer demand in the current year to date, we remain conscious of the headwinds that prevail at this time, including the general global macro-economic and geopolitical situation,” she said, adding that group trading in the current year to date was up 5 percent as demand for sportswear continued. Sales at the sports fashion chains soared 40 percent to £8 billion (€9.3bn) as they opened more stores in the U.S. and expanded online, with 30 percent of U.K. sales now being online compared with 22 percent pre-pandemic.

JD’s outdoor segment also returned to profitability, thanks to a boom in U.K. “staycations.” These helped to fuel a surge in sales of camping, cycling and outdoor gear at the Blacks, Millets and Go Outdoors stores, where sales jumped almost 42 percent to £513.4 million (€€596m). The division posted profit before tax and exceptional items of £25.9m (€30m), compared with a £6m loss a year ago, as more people began exercising during Covid pandemic lockdowns. Outdoor gross margins increased to 43.9 percent from 42.2 percent.

Profits from the U.K. and Ireland increased to £471.2 million (€545m) from £262.7 million, with strong retention of sales through online in the first quarter, when stores were temporarily closed, combined with solid demand after they reopened.

The group’s North American operations reported a profit before tax and exceptional items of £343 million (€398m), up from £171.9 million, including a full-year contribution of £57.3 million (€66.5m) from Shoe Palace and £50.6 million (€58.7m) from DTLR, which was acquired in March 2021.

Elsewhere in North America, Finish Line – including the Macy’s concessions – lifted profit before tax and exceptionals by more than 51 percent to £236m (€274m). The regional result was heavily influenced by the U.S. government’s fiscal stimulus program in the year’s first half, with revenues between mid-March and mid-July more than 40 percent ahead of pre-Covid levels. “Encouragingly, our businesses in the United States also traded positively in the second half of the year when there was no stimulus support.”

The company said its annual profit had been achieved against a backdrop of a global shortfall in the supply of certain key footwear styles, adding that supply was expected to improve progressively through the remainder of the year. It also cited temporary store closures in many of its markets, supply shortages due to factory closures in the supply chains of the international brands, turbulence in international logistics and “the ongoing administrative and cost consequences” of Brexit as significant constraints during the year. The company said it was spending €95 million on a new warehouse in the Netherlands to supply stores in Europe. It also constructed a new facility in the U.K. to dispatch online orders.

JD Sports also expanded its leisure center interests, spending £11.1 million (€12.7m) on a 60 percent share in Total Swimming Group, founded by former U.K. Olympic swimmers Steve Parry, Rebecca Adlington and Adrian Turner. The company’s operations include Swim!, the U.K.’s first multi-site operator of dedicated children’s swimming schools. A further £4 million (€4.6m) is payable if performance targets are met.

Following the controversial exit of Cowgill, JD Sports admitted that independent investigations and a governance review into its regulatory issues identified a need to bolster the board and improve internal controls. JD has been the subject of several investigations by the U.K.’s Competition and Markets Authority (CMA), one of whose provisional findings is that the company, along with a rival, broke competition law over Rangers FC merchandise pricing. In February, it was also fined £4.3 million (€5m) by the CMA for exchanging information with Footasylum, which at the time it had agreed to buy. The regulator later rejected the deal, forcing JD Sports to sell Footasylum on.

The company says it will implement “a more formalized approach to governance, risk management and the documentation and appraisal of internal controls.”