In spite of cut-throat competition in British sports retailing, the John David Group managed to lift its comparable sales and multiply its profits for the financial year ended last Jan 27. The JD banner has continued to establish itself as an appealing sports and lifestyle retailer, enabling it to move further away from the tough sports market.
Sales in the company’s sports stores were up by 9.8 percent to £492.8 million (€725.7m-$979.8m). On a comparable basis, excluding sales added through the acquisition of Allsports’ stores and the former Hargreaves airport-based outlets, sales increased by 4.8 percent. Furthermore, margins at the sports stores inched up by 1.3 percentage points to 47.6 percent. The improvements were coupled with heightened investments in marketing and merchandising, but that did not prevent the sports division from posting a 31.4 percent rise in operating profit before financing costs and exceptional items to £29.7 million (€43.7m-$59.1m).
The sports business has improved further since the end of the financial year, reporting a comparable sales rise of 8.1 percent for the 12 weeks ended on April 21, excluding the former Hargreaves stores. However, the group’s management attributes part of this expansion to temporary factors such as thewarm weather and in-store improvements. Besides, the segment will face tough comparisons with last year’s World Cup-related sales, while British retail spending could be more strongly affected by interest rate increases later this year.
Managers of the company’s sports retail business spent much of the year streamlining the various banners in the group’s portfolio after several acquisitions. It started with the integration of 73 former Allsports stores, which were converted into JD outlets. The revamping of 14 Hargreaves stores proved more troublesome and these units performed weakly, due to sharpened security measures introduced in UK airports last August. They will be refurbished and their offering is to be adjusted over the next months.
The group ended the year with 362 sports stores, having closed 26 doors and converted another 4 to fashion outlets. It admitted that its plans had been delayed by the abundant over-supply in retail real estate, with large new retail developments coming up while many retailers have ceased trading. While JD was hoping to finish cleaning up its store portfolio this year, it now estimates that it should take another year, and the cost is hard to predict.
Meanwhile the company continues to improve the displays of its JD stores and to widen its ranges of fashion-oriented products. Under the new formula, JD picks from the lifestyle ranges of the leading sports brands and almost entirely leaves out performance products. At the same time it continues to add leisure brands like Henri Lloyd, Levi’s and Paul and Shark, plus other labels purchased with limited distribution agreements.
The changes have apparently enabled the retailer to achieve strong recognition among suppliers as an appealing outlet for sports lifestyle products. It has built in-store corners with Adidas for its Originals ranges, and obtained exclusive deals to market products like its Rod Laver vintage shoes. The same applies for Nike, which launched its Ipod and Max light shoes through JD.
At the same time, JD has bumped up its margins by expanding its private labels business, now making up nearly 10 percent of sales in its sports stores. In 2006 it relaunched Carbrini, a sporty apparel brand, and introduced Brookhaven, an urban apparel label that will be sold more widely through its network this year. Last month it launched Frisk, a new private apparel brand targeted at teenage girls. Furthermore, JD’s largest private label, McKenzie, is being extended to include beachwear and a range of utility wear along the same lines as Carhartt.
The retailer is further building up its reputation through wide-ranging marketing investments. JD and Carbrini both featured on hoardings for the 2008 European football championships qualifying games, broadcast on Sky TV. More originally, it continues to deepen its ties with the music industry, seeking tie-ups with producers to promote rock concerts and album launches.
The changes are apparently paying off strongly among young consumers. In a survey run by Interactive Weekly, an independent gaming magazine, JD tops the list of UK teenagers’ favorite stores. Verdict consumer research points to a whopping rise in the retailer’s ranking among consumers, as it jumped from 53rd to 10th position.
As for the group’s fashion business, its comparable sales increased by 3.7 percent for the year, but reported sales still dropped by 8.9 percent to £37.7 million (€55.5m-$74.9m) due to the closure of 8 under-performing stores. The division ended the year with 44 stores. Banner changes continued apace with the conversion of Ath and AV stores into Scotts outlets. Two more stores were closed over the last weeks, and there are still 6 stores to be revamped.
The gross margin in the fashion business improved by 0.8 percentage points to 46.3 percent. However, the division posted operating losses before financing and operational items of £2.4 million (€3.5m-$4.8m), only a little less than last year, and the company indicates that it should not return to profits until property issues are resolved. Furthermore, the last weeks have not been very encouraging for the fashion division’s outlook in terms of sales. It went through some particularly rough weeks in February, dragging comparable sales down by 2.1 percent for the first 12 weeks of the current financial year.
For the group, the year ended with a sales increase of 8.2 percent to £530.6 million (€781.4m-$1,054.9m), up by 4.7 percent on a comparable basis. Its gross margin improved by 1.3 percentage points to 47.5 percent, which was better than expected. Operating profits jumped by 36 percent to £27.3 million (€40.2m-$54.2m), and net profits more than quadrupled to £10.4 million (€15.3m-$20.6m).
The figure was impacted by exceptional items of £7.8 million (€11.5m-$15.5m), chiefly relating to impairment of goodwill for Scotts and the Hargreaves stores. The performance of both banners has been disappointing so far, and the group anticipates that some airport concessions will not be renewed, due to security issues. The store located in Stansted airport already closed in February.
The group has returned to a positive cash situation, reporting net cash of £10.9 million (€16.1m-$21.7m) at the year-end. This adds up to a remarkable improvement of £61.9 million (€91.2m-$123.1m) over the last 3 years, although the company spent £24.1 million (€35.5m-$47.9m) on acquisitions during that time.
For the first quarter of the current financial year, the group’s comparable sales were up by 7.5 percent, excluding Hargreaves, but the company’s managers don’t expect the same level of growth for the rest of the year. The outlook remains cautious for the second half.