Sports Direct is entering Hungary and Iceland

Sports Direct International (SDI), the leading British sports retailer and brand owner, is moving ahead with its plan to open stores across Europe in the coming years. After its moves into Slovenia, Cyprus, Portugal and France in the last years, the company has opened its own store in Hungary and another through a joint venture in Iceland.

While detailing its results for the financial year through April 29, Sports Direct said that it wants to open 10 to 15 new stores and move into three to five new European markets during the current financial year. In addition to the countries above, Sports Direct is already strongly established in Belgium, the Netherlands and Slovenia.

Sports Direct had 43 stores in Belgium at the end of the period, one less than the previous year. The number of Slovenian stores remained unchanged with 14 stores, but Sports Direct expanded its network by three stores to 13 stores in Portugal, and by two stores to six outlets in both the Netherlands and Cyprus. Three French stores were added in the financial year, to form a network of five stores.

All in all, Sports Direct had 88 stores outside the U.K. and Ireland at the end of the fiscal year, compared with 79 the previous year, and their floor space increased by 15 percent. All of the stores are fully owned by Sports Direct, apart from the stores in Portugal, in which the company has a stake of 50.1 percent.

The group's retail sales (outside the U.K. and Ireland jumped to £157 million (€200.3m-$244.4m) for the full fiscal year. This was an increase of 16.6 percent for comparable periods – because the fiscal year ended in April 2012 lasted 53 weeks, Sports Direct provided comparisons based on a shorter period to make it directly comparable with the previous 52-week fiscal year. In constant currencies, the increase for adjusted periods reached 15.5 percent.

The gross margin for the international retail division dipped by 0.1 percentage points to 43.4 percent. The company reported an increase of 0.1 percent in what Sports Direct describes as like-for-like gross contribution, taking into account the sales of stores that traded for the full 12 months in both reporting periods and were not subject to any significant changes. This applied to 46 stores outside the U.K. and Ireland, and excluded online sales.

Operating costs climbed by 22.2 percent for the international retail business to £55.5 million (€70.8m-$86.4m) over a 52-week period, chiefly due to the expansion of the network. Excluding income from Sports Direct's partnership with Heatons in Ireland, the international retail unit's underlying's Ebitda shrank by 5.7 percent to £11.5 million (€14.7m-$17.9m) over 52 weeks. This underlying Ebitda excludes gains and losses from foreign exchange rate changes, as well as costs relating to bonus schemes.

The Hungarian store was apparently opened at Debrecen a few weeks ago, after the end of the reporting period, while the Icelandic store was opened at Kópavogur outside Reykjavik in May. It was described as a joint venture between Sports Direct and two individuals, Jeff Blue and Sigurður Pálmi Sigurbjörnsson. Blue is the retail specialist who supervised some ill-fated investments into U.K. retailing by Baugur, the Icelandic group. He has become managing director of DC Advisory Partners, an investment banking firm. Sigurbjörnsson is the stepson of Jón Ásgeir Jóhannesson, the former Baugur chief. His family holds the Ikea franchise in Iceland.

International retail sales still amount to only a fraction of the group's retail turnover in the U.K., which reached £1,368 million (€1,745m-$2,130m) in reported terms, up by 7.8 percent for the adjusted 52-week period. The number of the retailer's U.K. stores declined by one door to a total of 305 at the end of the period. It reported a 0.7 percent increase in like-for-like gross contribution, based on the performance of 290 stores.

The group again increased its share of the U.K. market, particularly against JJB Sports, its troubled rival. Sports Direct pointed out that it had performed strongly in spite of a tough comparison with the previous financial year, which included sales related to the 2010 football World Cup. The group's gross margin for U.K. retailing was down by 0.9 percentage points to 41.0 percent.

The latest period was also marked by rapid growth in online sales, up by 81.8 percent to £174.0 million (€222.0m-$270.9m), making up about 11.6 percent of the group's entire sports retail sales, compared with a share of 7.0 percent in the previous fiscal year. The operating costs of the U.K. retail division decreased by 1.1 percent, in spite of investments in its distribution center, and underlying Ebitda for the division jumped by 18.4 percent to £207.7 million (€265.0m-$323.3m) for 52 weeks.

Furthermore, the group's retail turnover was inflated by the addition of a lifestyle and fashion retail business, which was started with the acquisitions of Cruise and Van Mildert during the financial year. Sports Direct just added a third banner, Flannels, which has six stores in the U.K. and was acquired after the end of the reporting period. For the fiscal year this premium lifestyle division added sales of £74 million (€94.4m-$115.2m). The sports retail division's sales were up by 8.7 percent for an adjusted 52-week period, but adding the new lifestyle division, the entire retail division saw its sales jump by 14.0 percent.

When it comes to the group's brands division, with businesses ranging from Dunlop to Karrimor and many more, its turnover reached £196 million (€250.1m-$305.1m) for the reported term, which was an increase of 4.3 percent for a comparable 52-week period. Wholesale revenues were up by 4.0 percent to £168.5 million (€215.0m-$262.3m) for 52 weeks, driven by the North American market, while licensing revenues climbed by 6.6 percent to £27.4 million (€35.0m-$42.7m).

Sports Direct expanded its presence in the lifestyle segment by acquiring some rights to the Firetrap and Full Circle brands from court-appointed administrators in February. Furthermore, the company bought the 50 percent in global rights it did not previously own in the No Fear brand.

The brands division's underlying Ebitda increased by 10.6 percent to £25.0 million (€31.9m-$38.9m) for 52 weeks.

The entire group's sales reached £1,836 million (€2,342m-$2,858m) for the full fiscal year, which was an increase of 13.0 percent compared with the previous year, based on adjusted periods. SDI's gross margin declined slightly, down by 0.7 percentage points to 40.5 percent for the entire group. However, SDI kept a tight grip on operating costs, which increased by just 3.7 percent, excluding costs relating to the lifestyle division.

SDI reported underlying Ebitda of £240.5 million (€306.8m-$374.4m) for the fiscal year. Adjusted to a 52-week period, this underlying Ebitda reached £235.7 million (€300.7m-$366.9m), an increase of 11.7 percent. This is above the target set by the company as part of its employee bonus scheme to reach underlying Ebitda of £215 million, and above the super-stretch target of £225 million. This means that about 2,000 Sports Direct employees will receive their first share awards in August, with a second share to be delivered at the same time next year. The cost of the bonus scheme reached £20.7 million (€26.4m-$32.2m) for the fiscal year.

The group's reported profit before tax landed at £151.5 million (€193.3m-$235.9m) for the full fiscal year. For an adjusted 52-week period, it reached £148.0 million (€188.8m-$230.4m), which was 24.5 percent more than the previous year. Debt was reduced to 0.68 times reported Ebitda, despite investments of £131 million (€167.1m-$203.9m) in properties and £26.2 million (€33.4m-$40.8m) in acquisitions.

Still, the company's board recommended that no dividend should be paid out to shareholders, due to the fact that several new acquisitions were under consideration and that the company needed flexibility in terms of cash in the near term. These potential deals probably include the group's possible acquisition of Umbro, the British football brand, which Nike wants to divest. Sports Direct has been identified as one of the potential buyers.

The company said that trading since the end of the reporting period had been in line with its expectations, in spite of the uninspiring performance of the England football team at the Euro championships and weather conditions that have been ghastlier than ever in the U.K. so far this summer. JJB Sports has blamed these factors for its poor performance lately.