JD thrives on athleisure, expansion and astute retailing

Avid demand for sneakers, multiple store openings and acquisitions helped JD Sports Fashion to deliver bumper results again for the full year to Jan. 28, with a 31 percent increase in sales to £2,378.7 million (€2,806.7m-$2,978.6m) and even sharper rises in profits.

The outdoor division turned profitable and the entire group's profit before tax and exceptional items was up by 56 percent to £244.8 million (€288.9m-$306.5m). Its profit before tax soared by 81 percent to £238.4 million (€281.3m-$298.5m).

The figures include the acquisition of Go Outdoors, although the outdoor retailer did not have a material impact on the reported year because it was bought shortly before the end of the period.

The JD group pointed out that its result has improved by more than 190 percent over a three-year period. JD shares rose sharply upon the publication of the results, valuing the group nearly two and a half times as much as its rival, Sports Direct International (SDI).

JD Sports Fashion was helped by cultural trends pushing sales of fashionable sports gear around Europe, but the company emphasized that it managed to leverage this demand through investment in its retail concept and creative marketing. Peter Cowgill, JD Sports Fashion's executive chairman, said in a statement that it was well positioned for further profitable growth, despite external influences that may impact the latter part of the year, notably inflationary pressures arising from Brexit.

The Sports Fashion division alone reported a turnover of £2,180.5 million (€2,572.9m-$2,730.4m), up by 30.8 percent. Its gross margin was up by 0.4 percentage points to 49.4 percent, owing to lower markdowns and the stronger Euro. The group added that it should manage to mitigate the negative impact of the weaker pound against the dollar this year. The division's operating profit before exceptional items jumped by 50.5 percent to £245.1 million (€289.2m-$306.9m).

The number of stores in the sports fashion entity expanded from 736 to 1,050, with eight extra JD stores in the U.K. and Ireland, 54 more in continental Europe, two more in Asia and one more Size store. It also added three Chausport stores to end the year with 75, while the number of Sprinter stores was raised by 15 to 119, and both of these chains performed strongly. The growth in the store count further included acquisitions in the Netherlands, Portugal, Malaysia and Australia.

However, the sales rise also includes a comparable sales increase of over 10 percent for the European stores in the group's Sports Fashion division – all the more remarkable given the comparable increases already achieved in the three previous years. The JD group reiterated that it would be unreasonable to expect comparable store sales growth to be maintained at this level for another year, but it pointed to other growth options in domestic and international markets.

The 54 store openings for JD in continental Europe include larger flagship stores in Cologne and Brussels, and they compare with the addition of 38 JD stores last year. The group said this expansion would remain a strong focus, despite short-term uncertainties around Brexit.

The Sports Fashion division advanced further in Europe with the acquisition of Aktiesport and Perry Sport stores in the Netherlands, from the bankruptcy of the Unlimited Sports Group (USG). JD Sports Fashion started by stabilizing the situation by trading through a disjointed stock position, getting the supply chain started afresh and working out the optimal store count and infrastructure. These efforts are ongoing, and these Dutch stores are not expected to make much of a contribution in the current fiscal year. The British owner refurbished Perry Sport on the Kalverstraat in Amsterdam and Aktiesport at the Zuidplein Shopping Center in Rotterdam.

Another acquisition was a package of twelve stores trading as The Athlete's Foot in Portugal. They have been converted to JD and are included in a projected tie-up between JD Sprinter and Sonae across Spain, Portugal and the Canary Islands. As previously reported, they intend to form the Iberian Sports Retail Group, with 287 stores and an estimated turnover of about €450 million. JD Sprinter is a Spanish company owned at a majority by JD Sports Fashion, combining JD and Sprinter stores in the country. Sonae is the owner of Sport Zone in Portugal and Spain. They are working on detailed agreements to finalize a transaction.

JD Sports Fashion also opened two more stores in Kuala Lumpur to end the fiscal year with three stores in Malaysia. A fourth outlet started business in the current fiscal year, again in the Malaysian capital. Separately, JD bought 20 small multi-brand stores from its joint venture partner, Stream Enterprises, trading as Sports Empire, Revolution and The Marathon Shop.

After the purchase of 32 stores trading as Glue and Superglue in Australia last year, the first JD store in the country is to open in the spring, in the Melbourne Central Shopping Center. Several more are expected to open in other Australian locations during the fiscal year. JD is strengthening its management team to support its international expansion over a wider geography.

With Blacks, Millets, Tiso and other outdoor specialists, the turnover of the outdoor division was up by 27.6 percent to £198.1 million (€233.7m-$248.1m). Its gross margin moved up by 0.4 percentage points to 43.7 percent, due to reduced levels of discounting that were slightly mitigated by lower margins for Go Outdoors. The division reported an operating profit before exceptional items of £1.1 million (€1.3m-$1.4m), compared with a loss of £4.0 million for the previous year. The group simplified management at Blacks and Millets, enhanced the camping offer and reduced markdowns. Tiso dealt with under-performing stores and thus delivered a positive result.

The outdoor division ended the year with 238 stores, up 56 compared with the end of the previous year. While Go Outdoors added 58 stores, the count was reduced by one store each for Blacks, down to 59, and for Tiso, which was left with 15. The number of Millets stores was unchanged at 99, and the same applies for Ultimate Outdoors with seven.

Due to Go Outdoors, the reported turnover of the JD Group's outdoor division could more than double for the current fiscal year. JD agreed to pay £112.3 million (€132.5m-$140.6m) and to assume net debt of about £11.4 million. It pointed to the complementary aspects of this business, which mostly runs out-of-town stores and is active in complementary categories, particularly cycling.

The JD group wants to combine strengths such as Go Outdoors' membership scheme with its own expertise in multi-channel retailing. However, the group pointed out that investments would be required in IT, logistics and infrastructure.

JD Sports Fashion is also investing in its warehouse in Kingsway, which was at the center of allegations regarding working practices last year. The company said it was greatly disappointed and it appointed Deloitte to conduct an independent review. It concluded that the allegations did not represent a balanced characterization of working practices at the facility.

JD has started a project to expand its internal use of the Kingsway warehouse site, at a projected cost of about £20 million (€23.6m-$25.0m) and an extension of about 32,700 square meters is to be handed over in spring 2018. The subsequent cost has been estimated at £42 million (€49.6m-$52.6m), although much of that should be incurred in the next fiscal year.