Ongoing strong results at Sports Direct

The London Olympic Games contributed to an impressive sales increase at Sports Direct International (SDI), which saw its turnover jump by 22.5 percent to nearly £1,089 million (€1,337m-$1,765m) for the 26 weeks until Oct. 28. Aided by the outstanding performance of British athletes at the Olympics, as well as the European football championships, retail sales in the U.K. climbed by 18.1 percent to £796.9 million (€978m-$1,292m). The gross margin of the U.K. retail unit was nearly stable, up by 0.1 percentage point to 42.3 percent, while its underlying operating profit before amortization (Ebitda) advanced by 16.9 percent to £143.5 million (€176.2-$232.6m).

The company pointed to a particularly impressive jump of 54 percent in online sales for the six months to £110.5 million (€135.7m-$179.1m), making up about 12.5 percent of all of SDI's retail sales, up from 9.5 percent for the same months last year. All online sales are formally reported as part of the group's U.K. retail sales. Sports Direct's online store was updated after the end of the first half, with encouraging results so far.

The group's U.K. retail business expanded with an increase of about 2.5 percent in the total retail surface and the acquisition of Used Tackle: This retail chain focuses on fishing products, which are now available at Sports Direct's online store. Separately, as already reported, SDI bought 20 stores in the U.K. from the administrators of JJB Sports, along with all the stock of its failed rival, the Slazenger Golf brand licenses and some other assets. However, the turnover of £17.2 million (€21.1m-$27.8m) from this acquired business was reported in U.K. wholesale and other, so that it did not contribute to the 18.1 percent jump in SDI's U.K. retail sales.

International retail sales advanced by 11.4 percent to £90.6 million (€111.2m-146.8m) for the half-year, as SDI moved into four new countries, Iceland, Hungary, the Czech Republic and Slovakia, as described above. The sales rise amounted to an increase of 22.6 percent in constant currencies, which was mostly due to the fact that the store openings expanded the group's retail surface outside the U.K. by 20.0 percent.

The gross margin of SDI's international retail segment was up by 0.5 percentage points to 44.4 percent. However, costs increased faster than sales, due to investments into international infrastructure and store openings. The underlying Ebitda of SDI's international retail business declined by 1.2 percent to £8.0 million (€9.8m-$12.9m).

Meanwhile, the revenues of SDI's Premium Lifestyle division increased by 150.4 percent to £56.1 million (€68.9m-$90.9m) through the group's Cruise, Van Mildert and USC fashion retail chains. The jump was mostly due to the fact that USC and Cruise were bought in July 2011, so they were part of the group for only part of the comparable period of last year. SDI also expanded this part of its business with the acquisition of Van Mildert and the Flannels Group. The unit was loss-making in the first half of the fiscal year, but SDI said it was making progress and should report an Ebitda profit for the full year.

The entire retail division of SDI lifted its sales by 23.3 percent to £982 million (€1.206m-$1,592m) for the six-month period. Its gross margin was down by 0.6 percentage points to 41.0 percent, mostly due to the lower margin at the acquired JJB stores.

The brands division, which comprises brands from Dunlop to Karrimor and many more, saw its sales increase by 15.7 percent to £106.9 million (€131.3m-$173.3m). Wholesale revenues were up by 16.4 percent to £92.3 million (€113.3m$149.6m), owing mostly to expansion in the U.S. and the acquisition of Firetrap from court-appointed administrators in February. Excluding this purchase, wholesale revenues were down by 0.5 percent. Revenues from licensing were up by 11.5 percent to £14.6 million (€17.9m-23.7m).

The gross margin for the brands division firmed up by 2.4 percentage points to 43.0 percent. Its operating costs inflated by 25.2 percent to £32.3 million (€39.7m-52.3m), but £7.5 million (€9.2m-$12.1m) of this increase was related to Firetrap. On the other hand, the comparable period last year included a onetime payment of £2 million (€2.4m-$3.2m) to the golfer Darren Clarke. The underlying Ebitda for the division jumped by 17.1 percent to £13.7 million (€16.6m$22.2m) for the half-year.

The entire group's gross margin was down by 0.3 percentage points to 41.2 percent, which SDI attributed to its determination to offer lower prices. Nevertheless, underlying Ebitda improved by 17.2 percent to £163.2 million (€200.4m-264.5m), before costs relating to the company's employee bonus scheme. SDI's reported profit before tax jumped by 24.8 percent to £125.2 million (€153.7m-$202.9m). SDI said it remained confident of reaching its targeted underlying Ebitda of £270 million (€331.6m-437.6m) for the full year, before costs related to the bonus scheme.

SDI's board tried earlier this year to introduce a super-stretch bonus share scheme for Mike Ashley, the founder and majority shareholder of the group. Ashley, who is not getting any remuneration from SDI, could have earned more than £20 million (€24.6m-$32.4m) from the bonus, but the proposal was withdrawn from the agenda of the group's shareholders' meeting in September because it faced opposition from minority shareholders.

The board said it was still looking for ways to reward Ashley for his contribution – in other words trying to convince the wayward shareholders that some special bonus scheme should be approved. The board said it was also considering increasing the key underlying Ebitda targets of its proposed super-stretch bonus share scheme for the next two financial years, from £290 million to £310 million (€381m-$502m) for 2014, and from £340 million to £360 million (€442m-583m) for 2015.

Separately, the company continues to expand its campus in Shirebrook to cope with the growth of its business. The second enlargement is now fully operational and the group is preparing to start constructing a new warehouse of one million square feet during the 2013-14 financial year.