Frasers Group – the parent company of Sports Direct and other retail chains – reported mixed results as sales declined in all its segments except Premium Lifestyle for the fiscal year ended April 25, noting that it was marked by about six months of temporary closures for virtually all its stores in its core U.K. market due to Covid-19. The impact was less severe in the company’s stores elsewhere in Europe, but their sales dropped even more.
While the stores that have reopened in the U.K. have performed above expectations and Frasers’ online channel continues to “significantly” outperform pre-Covid 19 periods, the company declined to provide an outlook for the current fiscal year, highlighting uncertainty about the evolution of the Covid-19 pandemic and what it sees as the “probable” return of Covid restrictions, most likely in the winter.
The group’s CEO, Mike Ashley, stressed that its “Elevation No Limits” strategy “is working and we are fully supported by our third-party brands as elevation is complimenting (sic) their own strategy.” He mentioned in particular the refurbished Sports Direct store on London’s Oxford Street, which received “overwhelming endorsements” from customers and brands such as Nike and Adidas. He also drew attention to its Flannels chain of upmarket fashion stores, whose sales have been growing at an annual rate of 40 percent. The chain is in line to reach a turnover of £2 billion (€2.3bn-$2.8bn) by 2026, he added.
In the 52 weeks ended April 25, the group’s total revenues declined by 8.4 percent to £3,625 million (€4,264m-$5,052m) and were down by 11.4 percent excluding acquisitions and on a currency-neutral basis.
The group’s gross margin held steady, however, coming in at 42.2 percent, up by 0.2 percentage points on the year earlier. Frasers also reported a net loss of £78.0 million (€91.8m-$108.7m) for the fiscal year compared with a profit of £101.0 million in the previous one. The pre-tax profit slumped to £8.5 million (€10.0m-$11.8m) from £143.5 million. On the other hand, the company’s underlying Ebitda grew to £390.8 million (€459.7m-$544.5m) from £302.1 million. Net debt declined to £248.9 million (€298.2m-$346.8m) from £366.0 million at the end of the previous fiscal year.
Starting with the current fiscal year, Frasers will change its accounting to better comply with IFRS guidelines. It will replace underlying Ebitda with adjusted pre-tax profits, which would have amounted to a loss of £53.7 million for the past year.
In the past year, the group’s UK Sports Retail segment, which is dominated by the Sports Direct banner, saw sales fall by 10.7 percent to £1,968 million (€2,315m-$2,741m), largely due to temporary store closures, offset by growth in its online business and pent-up demand at reopening stores. Excluding acquisitions, the segment’s revenues decreased by 14.6 percent.
Underlying Ebitda for UK Sports Retail rose by 22.8 percent to £279.2 million (€328.4m-$388.9m) as gross margin increased by 1.1 percentage points to 42.1 percent, due to an improved product mix. The management also mentioned improved operating efficiencies, growth in online sales and strong sales after the stores reopened.
Revenues for the European Retail segment, which mainly consists of sports stores in other parts of Europe, declined by 11.8 percent to £615.2 million (€723.6m-$857.0m) and were 20.5 percent lower than in the previous year on a currency-neutral basis and excluding acquisitions. The segment’s gross margin widened by 0.6 percentage points to 39.0 percent, again due to improving product mix, but its underlying Ebitda declined by 92.1 percent to £4.1 million (€4.8m-$5.7m).
Wholesale and licensing revenues from the group’s own brands dropped by 4.3 percent to £153.3 million (€180.3m-$213.5m), but the wholesale gross margin improved by 4.3 percentage points to 33.6 percent. Licensing revenues decreased by 15.5 percent.
On the other hand, the Premium Lifestyle segment, led by Flannels, saw sales increase by 1.9 percent to £735.6 million (€865.3m-$1,025m), largely due to growth in its online business and new store openings. Excluding acquisitions, the segment’s revenues rose by 1.4 percent. Underlying Ebitda jumped to £53.9 million (€63.4m-$75.1m) from £4.5 million; although the gross margin fell to 44.9 percent from 48.3 percent the year earlier.
In the Rest of the World, which consists of the revenues of Bob’s Stores and Eastern Mountain Sports, the two U.S. sports retail chains acquired in May 2018, plus the Sports Direct stores in Malaysia, sales decreased by 12.3 percent to £152.7 million (€179.6m-$212.7m). Underlying Ebitda amounted to a positive £25.6 million (€30.1m-$35.7m) as compared to an Ebitda loss of £6.8 million the year earlier, although the gross margin went down to 41.9 percent from 44.4 percent because of the lower margin of its U.S. stores, which made up a larger portion of the turnover.
The total number of stores within the group rose slightly to 1,547 last year. The number of sports stores in the U.K. increased to 805 from 769 in the course of the year. Frasers acquired 42 DW Sports and Fitness stores out of administration for £37 million (€43.5m-$51.5m) to complement its existing gym and fitness club portfolio. The business caused a loss, but it is undergoing a refurbishment and rebranding.
The European Retail segment mainly consists of sports stores, too. Their number declined to 486 from 511. A total of 25 Game store in Spain were closed down. Door numbers were basically flat or down slightly in all countries except in Ireland, where they grew to 39 from 35. All the Heatons department stores in Ireland now have a Sports Direct area. The group sees further opportunities for expansion in the Republic. Eight new Sports Direct stores incorporating a USC lifestyle section were opened in Continental Europe.
The income statement showed an increase in investment income to £103.7 million (€122.0m-$144.4m) from £15.2 million a year earlier. During the last year, Frasers increased investments in the German fashion group Hugo Boss and the British Mulberry fashion house, in which it owned stakes of 16.4 percent and 36.8 percent, respectively, as of April 25.
Frasers plans no final dividend payment for the 2021 fiscal year as it intends to make further investments in the business to support its “elevation” strategy. Ashley reiterated that the group will open new stores depending on the landlords’ agreement to base leases on their performance and on the revision of the business rates imposed by the British government, which have been suspended during the pandemic.
