Frasers Group - the U.K.-based parent company of Sports Direct and other retail chains – said it was on track to post record profits for its full year, after sales in its first half ended Oct. 24 rose by 23.6 percent to £2,339.8 million (€2,736.6m-$3,089.1m). Top line gains were supported by both the online and offline businesses, which have continued to perform strongly since the reopening of physical stores from the last lockdown in the U.K. in March.
Frasers now expects to report record adjusted pre-tax earnings of £300 million (€350.9m-$396.0m) to £350 million (€409.3m-$461.9m) for the full year ending April 24, 2022, “on the proviso there are no substantial lockdowns imposed in the U.K., particularly over the important Christmas period.” That would compare with just £5.8 million last year and the group’s previous underlying profit record of £300 million in 2015. The forecast accounts for headwinds including supply chain risks, uncertainty on the evolution of the Covid-19 pandemic as new restrictions return to parts of Europe, and “a likely cost of living squeeze which could impinge on consumers’ spending plans heading into the new year.”
In the 26 weeks to Oct. 24, Frasers’ adjusted pre-tax profit jumped by 61.7 percent from the year earlier to £186.8 million (€218.5m-$246.5m). The gross margin inched up to 44.7 percent from 44.0 percent, as the group kept product margins stable over the period. Net profit grew by 70.3 percent to £143.7 million (€168.1m-$189.7m), while net debt fell sharply, to just £24.3 million (€28.4m-$32.1m) from £250.1 million a year earlier.
Frasers said its U.K. Sports Retail segment, which is dominated by the Sports Direct banner and is the main driver of the group, saw revenues increase by 27.6 percent to £1,367.1 million (€1,598.4m-$1,803.1m) in the first half, as stores performed strongly after the last lockdown. The gross margin narrowed to 43.8 percent from 44.4 percent a year earlier, amid robust growth in Game UK’s console sales, which have a lower gross margin, but also because of increased inventory provisions in this segment. The adjusted pre-tax profit jumped by 111.2 percent to £117.4 million (€137.3m-$154.9m)
Revenues for the European Retail segment, which mainly consists of sports stores in other parts of Europe, rose by 13.6 percent to £399.8 million (€467.5m-$527.4m), led by strong growth in Ireland and a positive comparable effect versus the lockdowns of the prior year. Excluding acquisitions and on a currency-neutral basis, segment revenues increased by 18.4 percent. The gross margin widened to 43.7 percent from 41.7 percent in the year-ago period, driven by a continually improving product mix in the core business, partially offset by increased lower margin console sales in the Spanish Game operations. The segment’s adjusted pre-tax profit soared by 220.5 percent to £60.9 million (€71.2m-$80.3m).
While continuing to invest in the automation of its main warehouse near its head office in Shirebrook, Frasers completed the purchase in November of a piece of land in Bitburg, Germany, that will house a new one-million-square-foot warehouse that is expected to significantly expand the group’s fulfilment capabilities in Europe.
In the Rest of the World, which includes the revenues of Bob’s Stores and Eastern Mountain Sports in the U.S., plus the 51.0 percent-owned Sports Direct stores in Malaysia, sales decreased by 14.9 percent to £65.6 million (€76.7m-$86.5m), mainly due to Covid-related restrictions in Malaysia. The Gross margin improved to 53.0 percent from 39.6 percent, largely because of inventory holding efficiencies combined with less year-on-year promotional activity in the U.S. The adjusted pre-tax profit doubled, to £14.3 million (€16.7m-$18.9m) from £7.7 million, supported by operating efficiencies in U.S. businesses.
Wholesale and licensing revenues from the group’s own brands went up by 10.0 percent to £79.4 million (€92.8m-$104.7m), with wholesale revenues rising by 11.5 percent to £68.7 million (€80.3m-$90.6m) and licensing revenues inching up by 0.9 percent to £10.7 million (€11.7m-$13.2m). The segment’s gross margin stood at 41.6 percent versus 41.4 percent in the first half of the previous financial year, while the pre-tax profit decreased by 43.5 percent to £3.9 million (€4.6m-$5.1m), due to goodwill impairment charges in the period.
Sales in the Premium Lifestyle segment grew by 33.6 percent to £427.9 million (€500.2m-$564.4m), boosted by the opening of new Flannels stores, continued growth in the online business, growth in the House of Fraser department store operations and the impact of Covid-19 lockdowns on prior year sales. The gross margin increased to 47.7 percent from 47.0 percent. The Premium Lifestyle segment posted an adjusted pre-tax loss of £9.7 million (€11.3m-$12.8m) against a profit of £26.3 million in the first half of the previous fiscal year, due mainly to property and other related impairments. Excluding these impairments, the adjusted pre-tax profit rose to £69.6 million (€81.4m-$91.8m) from £26.9 million.
