The acquisition of The Finish Line in the U.S. and Sport Zone in Iberia helped JD Sports Fashion to book a strong 49.2 percent increase in total revenues to £4,717.8 million (€5,454.2m-$6,171.5m) for the financial year ended on Feb. 2, compared with £3,161.4 million in the previous year. Finish Line and Sport Zone contributed revenues of £956.6 million (€1,107.9m-$1,251.3m) and £183.9 million (€212.9m-$240.5m), respectively, after they became part of the group. Excluding these two important acquisitions, sales went up by 13.1 percent.
The U.K.-based group ranked sixth in 2017 among the world’s largest integrated sporting goods retailing group. The latest figures suggest that it came very close last year to Foot Locker, the world’s N° 4 player overall and the biggest athletic footwear chain, whose sales reached $7.94 billion. It has become even stronger now that its acquisition of Footasylum, a British chain with annual sales of more than £200 million (€231.7m-$258.0m), was declared unconditional on April 12, augmenting its purchasing power with the likes of Nike and Adidas.
By the end of the financial year, the group operated a total of 2,167 stores on 7,909,000 square feet around the world, including more than 500 fashion stores. This can be compared with 3,221 stores covering 7.6 million square feet for Foot Locker, which has a narrower product range.
The total number of JD stores increased last year by 83. It rose by five in the U.K. and Ireland to a total of 390 doors, after 22 closures. In the rest of Europe, the JD banner now has a presence in ten countries with a total of 252 stores, not including an additional 438 sports stores operating under more local banners. Last year it opened the first two JD units in Finland and is about to open shortly the first one in Austria, located in Vienna’s central Mariahilfestrasse.
The JD group’s total comparable store sales went up by one percent last year across all the chains, including a 5 percent increase in online revenues. Globally, the group’s chains operating in the Sports Fashion segment enjoyed an encouraging increase of more than 6 percent on a comparable store basis, despite challenges in the domestic U.K market. Double-digit increases were achieved in the rest of Europe and Asia.
The overall gross margin of the group declined by 0.9 percentage points to 47.5 percent, but this didn’t prevent the U.K.-based sports, outdoor and fashion retailer from raising its Ebitda by 26.8 percent to a record level of £488.4 million (€565.6m-$638.9m) before exceptional items. After an increase of 17.1 percent to £361.5 million (€418.7m-$472.9m), the adjusted operating profit stood at 7.7 percent of sales.
Adjusted pre-tax earnings went up by 15.4 percent to £339.9 million (€393.6m-$444.6m). The attributable net profit went up to £264.2 million (€306.0m-$340.8m), and the board of directors is proposing a 5 percent increase in dividends. The biggest beneficiary will be the Pentland Group, which owns more than 57 percent of JD’s shares.
JD said that it was able to obtain higher sales and profits in its core Sport Fashion retail operations in the U.K. and Ireland. The lower margins were indirectly attributed to the dilutive effect of the takeover of Finish Line in the U.S. and Sport Zone in Iberia, but the management said that both should be able to deliver improved levels of profitability. Beyond that, its move into the U.S. will have positive effects on the long-term engagement of the sports brands with the group.
In the Sport Fashion segment, the gross margin declined by 1.2 percentage points to 48.0 percent on 156.5 percent higher sales of £4,296.4 million (€4,973.9m-$5,619.4m). Ebitda improved to £478.4 million (€553.8m-$625.7m) from £362.2 million.
On the other hand, the Outdoor segment showed a drop in the gross margin of 1.0 percentage points to 42.5 percent and a decline in Ebitda to £10.0 million (€11.6m-$13.1m) from £23.0 million. After amortization and depreciation, the segment ended up with an operating loss of £4.3 million (€5.0m-$5.6m) before exceptional items on slightly higher sales of £421.4 million (€487.9m-$551.2m), compared with an operating profit in the previous year of £8.8 million on revenues of £416.4 million.
Comparable store sales and online revenues were slightly positive in this segment, in spite of an increase in the total number of outdoor stores from 237 to 253 in the course of the year. They are trading as Blacks, Millets, Ultimate Outdoors, Tiso and Go Outdoors.
The management blamed the very hot weather in the U.K. last summer, followed by mild weather through much of the subsequent autumn and winter seasons, for its relatively poor results in the Outdoor segment. It said that the segment should become more resilient later this year after completion of a project that will give joint access to inventories and merchandising systems for the Blacks, Millets and Go Outdoors chains, with a new, shared central warehouse of 350,000 square meters in Middlewich.
In addition to its strong external growth, the group opened 73 new JD stores outside the U.K. and Ireland in the past year, including 39 in the rest of Europe and 34 in the Asia-Pacific region. At the end of the previous financial year, there were 56 new JD stores operating in the rest of Europe and nine in Asia-Pacific. A similar number of openings is planned in the rest of Europe for this year.
By the end of the first half, the group should also be able to complete the integration of the JD, Sprinter and Sport Zone stores in the Iberian Peninsula. However, a liquidation of excess inventories led to a loss of £18.2 million (€21.1m-$23.8m) for Sport Zone. Elsewhere in Europe, Chausport in France improved its results, while Perry Sport and Aktiesport in the Netherlands generated a profit for the first time under the group’s ownership.
In addition to other moves on the international front, JD has also taken advantage of Finish Line’s takeover by converting four of its stores to the JD format and opening a new one. The company will continue to use its dual-banner approach in the U.S. to maximize its reach across different demographics.
In the Asia-Pacific region, the group entered two new markets – Singapore and Thailand. It ended the year with 46 JD stores in these two countries, Malaysia, Australia and South Korea. Working with a local joint venture partner in South Korea, the group now has 16 JD stores there including 14 conversions from a former multi-brand chain, Hot-T, which had been acquired in the previous year. Another 10 Hot-T stores are due be rebranded as JD.
At the end of the past year, the group was also operating 23 gyms within more than 100,000 members in the U.K.
Besides its acquisition of Footasylum, on April 4 the group also acquired certain assets of a British menswear brand, Pretty Green, for £1.5 million (€1.7m-$1.9m), plus assumption of £1.8 million (€2.1m-2.3m) in debt.
Looking at the future, the management said it was confident that, by capturing the potential of its international development, it will have “the necessary agility” to counterbalance the potential negative effects of a disorderly exit of the U.K. from the European Union on supply chains, tariffs, exchange rates and consumer demand. At £2,137.9 million (€2,476.6m-$2,757.2m), the company’s sales in the U.K. grew by only 3.8 percent last year, and they now make up less than half of the total turnover.
We like another statement made by JD’s executive chairman, Peter Cowgill. He said that the group had achieved its new record results “with a relentless focus on ensuring that, at all times, we provide a compelling differentiated proposition to the consumer with an attention-grabbing theater both in stores and online.” He said that its consumers “expect our product and brand mix to be emotionally engaging, exclusive and continually evolving with high levels of social media penetration and an increasing pace of technology adoption across our core demographic ensuring that new styles and trends spread rapidly across a wide geography.”