The U.K. sports retail segment, which remains the core of Sports Direct International's businesses, showed a sales decline of 0.2 percent to £1,140.2 million (€1,267.9m-$1,437.0m) in the first half of its financial year, ended Oct. 28. The management attributed most of the drop to store closures implemented “as part of the continued elevation of the portfolio,” accompanied by a rise in online sales.

The number of Sports Direct and USC stores in the U.K. was down to 486 from 507 a year earlier, following 12 closures and four new openings, but their total surface increased to about 5.6 million square feet from 5.4 million square feet. The gross margin in the segment improved by 1.2 percentage points to 40.6 percent, thanks mainly to improved hedging on the U.S. dollar and additional inventory provisions, and its “underlying” Ebitda rose by 1.5 percent to £147.7 million (€164.2m-$186.1m).

Sales were down by 4.8 percent to £313.1 million (€348.2m-$394.7m) in the company's sports retail operations in the rest of Europe during the 28-week period, with a drop of 5.0 percent on a currency-neutral basis, again largely due to planned store closures. However, they generated a gross margin of 43.5 percent, 2.9 percentage points better than in the same period a year ago. Thanks to cost controls, their underlying Ebitda increased by 42.2 percent to £19.2 million (€21.4m-$24.2m) during the period.

As of Oct. 28, the group operated a total of 252 sports stores in 19 European countries outside the U.K., down from 257 a year earlier. Three stores were closed in Belgium and three in Austria.

Retail sales in the rest of the world rose by 28.1 percent to £100.1 million (€111.3m-$126.2m), with growth of 26.2 percent in local currencies, because of SDI's recent acquisition of Eastern Mountain Sports and Bob's Stores in the U.S. The segment, which has been restated, also includes SDI's 30 stores in Malaysia. The segment's gross margin inched up by 0.1 percentage point to 39.9 percent, but underlying negative Ebitda was reduced by 76.6 percent to £4.9 million (€5.5m-$6.2m), mainly due to fair value adjustments related to the American retail entities in the prior period.

The best results were achieved in the Premium Lifestyle segment, where sales jumped by 29.4 percent to £87.6 million (€97.4m-$110.5m), thanks largely to the opening of new Flannels stores in the U.K., and their gross margin improved by 2.4 percentage points to 34.2 percent.

Wholesale and licensing revenues declined by 17.6 percent to £80.1 million (€89.1m-$101.0m). The House of Fraser department store chain, which was acquired by SDI on Aug. 10, has contributed a turnover of £70.1 million (€78.0m-$88.4m) since then, with a relatively weak gross margin of 28.7 percent which diluted the company's overall results.

The group's total revenues went up by 4.5 percent to £1,791.8 million (€1,992.2m-$2,258.2m) during the period, but they were off by 0.2 percent excluding House of Fraser and currency conversions. Better dollar hedging on purchases and inventory provisions helped to improve the group's gross margin by 2.9 percentage points to 41.5 percent.

SDI reported “underlying” Ebitda of £148.8 million (€165.5m-$187.6m) for the half-year, 4.7 percent below the results of the year-ago period. Excluding acquisitions and in constant currencies, underlying Ebitda went up by 14.6 percent. Without counting House of Fraser, they actually increased by 15.5 percent, reaching a level of £180.3 million (€200.5m-$227.3m).

On a reported basis, pre-tax earnings rose by 62.4 percent to £74.4 million (€82.7m-$93.8m). Net income went up to £47.7 million (€53.0m-$60.1m) from £28.7 million. Net debt grew by 7.2 percent to £505.5 million (€562.0m-$637.2m) as compared to a year earlier, representing 1.5 times Ebitda over a 12-month period.

In spite of an “incredibly bad” month of November, the management said it remains confident that the group's underlying Ebitda will show an increase of between 5 and 15 percent for the full financial year, excluding House of Fraser, thanks in part to the resilience of its core sports business in the U.K.

Sports Direct Income Statement

('000 £, half-year ended Oct. 28)

2019

2018

% Change

UK Sports Retail

1 140,2

1 142,3

-0,2

European Sports Retail

313,1

328,8

-4,8

Rest of World Retail

100,7

78,6

28,1

Premium Lifestyle

87,6

67,7

29,4

Wholesale & Licensing

80,1

97,2

-17,6

House of Fraser

70,1

-

-

TOTAL REVENUES

1 791,8

1 714,6

4,5

Cost of Sales

1 048,4

1 053,6

-0,5

SG&A

658,3

556,0

18,4

Other Operating Income

10,3

10,7

-3,7

Exceptional Items

0,0

(5,0)

-

Profit on Sale of Properties

0,0

16,7

-

Other Investment Net Costs

1,8

32,5

-

Net Interest Expense

18.6

40.6

-

Other net Loss *

0.6

8.5

-

Pre-Tax

74,4

45,8

62,4

Tax

26,7

17,1

56,1

Minority Interest

2,60

2,70

-3,7

NET

47,7

28,7

66,2

Pence/Share (Diluted)

8,6

4,9

75,5

* Share of loss associated with undertakings

The results don't include those of Evans Cycles, which SDI acquired just after the end of first half. The management reiterated that some stores will have to be closed in order to save the bankrupt chain.