The JD Sports Fashion group saw its operating profit before onetime costs shrink to £3.2 million (€4.0m-$5.2m) for the 26 weeks until July 28, down from £16.2 million for the same weeks in 2011, chiefly due to acquisitions and accompanying disruption. The British sports fashion retailer bought Blacks Leisure, the outdoor retailer, out of administration in January, and it acquired two fashion retailers in the last months. However, JD said its outdoor retail business was stabilizing and it was aiming to break even in the second half before restructuring charges.

As anticipated, JD suffered an initial operating loss of £10 million (€12.4m-$16.2m) from the Blacks acquisition, because the outdoor retailer's stock was depleted and it was functioning with some under-performing stores and an unsustainable cost base. Then again, JD pointed out that about £9.0 million of this loss was incurred in the first three months after the acquisition.

After the buy, JD closed 92 Blacks and Millets stores, leaving 102 stores, and another four have been closed since the end of the reporting period. The company said that the network would be assessed again after the end of the year, partly depending on new rent deals, but its current intention is to move toward a single outdoor banner, Blacks, with a long-term target of about 150 stores. The company recently opened the first refurbished Blacks store at St. Paul's, in London, which has yielded satisfactory results so far.

The JD group's outdoor stores reached sales of £52 million (€64.3m-$84.4m) for the period, with a gross margin of 52.7 percent. This gross margin is much higher than that of the group's sports stores and ahead of expectations, owing to the strong performance of Peter Storm, the private label. The margin at Blacks is expected to weaken in the second half, however, due to a British summer that was rainier than ever, putting pressure on sales of camping products, which have to be cleared with aggressive discounts.

Meanwhile, the JD group is continuing to clean up Blacks' operations. These measures will not be completed until next spring, when the Blacks warehouse and central office facility in Northampton will be vacated. At that stage, the Blacks business will be fully integrated into the JD group and its infrastructure. As previously reported, JD has hired a new managing director for Blacks, Ken Reeve, the former buying and merchandising director at Cotswold Outdoor, who will join Blacks in November.

JD Sports Fashion Consolidated Income Statement

(£ ‘000, Six months ended July 30, 2012)

 

2012

2011

% Change

Sport Retail

371,163

322,743

15.0

Fashion Retail

65,601

59,516

10.2

Outdoor Retail

52,010

-

-

Distribution

67,214

57,509

16.9

Revenues

555,988

439,768

26.4

Cost of Sales

286,890

228,689

25.4

Gross Profit

269,003

211,089

27.4

OPBEI*

3,189

16,251

-80.4

Pre-Tax

2,879

20,072

-85.7

NET PROFIT

2,125

14,533

-85.4

Pence/share (diluted)

2.74

28.51

-90.4

*Operating Profit before Exceptional Items

The JD group's sales from sports stores jumped by 15.0 percent to £371.2 million (€459.3m-$602.5m) for the period. Remarkably, it achieved a comparable sales expansion of 1.2 percent for its sports fashion stores in the U.K. and Ireland, and it continued to expand in other countries. The group opened four stores in France, two of them JD and the other two Chausport, and it intends to open another five French stores in the second half of its fiscal year. Comparable store sales in France dipped by 0.9 percent, but the group pointed to a comparable sales rise of 1.6 percent for JD stores alone in France.

Meanwhile, the group opened another five stores in Spain, three of them JD stores and two Sprinter stores. The turnover of Sprinter reached £35.9 million (€44.4m-$58.3m), but the group could not provide any comparable figures since it did not own the Spanish chain for all of the same period last year. The group wants to support both the JD and Sprinter banners in the country. However, the company pointed out that margins should be lower in Spain in the second half, due to the increase in the VAT rate from 18 to 21 percent from the start of September. Champion Sport, the Irish sports retailer acquired last year, contributed sales of £17.3 million (€21.4m-$28.1m) amid a rough market situation. Since the end of the reporting period, in the six weeks to Sept. 8, comparable sales in the JD group's sports stores increased by 3.2 percent.

The gross margin of the sports retail business declined by just 0.2 percentage points to 49.3 percent. The unit's operating profit before exceptional items declined by £1.3 million to £18.9 million (€23.4m-$30.7m) for the period, which was entirely attributed to retail activities in the U.K. and Ireland. The operating profit was reduced by duplicated operating costs as all warehousing migrating to a centralized facility in Kingsway. The unit also incurred extra costs to comply with new environmental regulations. The operating loss in other European countries was stable at £0.3 million (€371,190-$486,960).

Adding fashion stores and wholesale distribution activities, including several acquisitions, the entire JD group's turnover reached nearly £556 million (€687.9m-$902.5m), which was a rise of 26.4 percent. Its gross margin inched up by 0.4 percentage points to 48.4 percent, partly due to the higher gross margin contributed by Blacks. The group's comparable operating profit dropped by 8.2 percent to £14.9 million (€18.4m-$24.2m). It ended the interim period with profit of £2.1 million (€1.7m-$2.7m), down from £14.5 million (€11.7m-$19m) for the same weeks last year.