In reporting very good results for the first eight months of its financial year, through Oct. 24, Sports Direct International revealed that it has entered the Portuguese market by taking a 51 percent stake in the third-largest sporting goods retail chain in the country, Mega Sport.
Announcing plans to expand its international retail operations into all 17 countries that have adopted the euro within five years, Sports Direct said it envisages the opening of four new stores in the Paris region during the 2011 calendar year. As of Oct. 24, the group operated outside the U.K. through 44 stores in Belgium, 13 in Slovenia, four in the Netherlands, four in Cyprus, one in France and one in Luxembourg. The overall retail space controlled by the group outside the U.K. increased by 4.1 percent during the latest eight-month period.
A manager of Mega Sport said the founders and managers of the Portuguese chain had decided to link up with the boss of Sports Direct, Mike Ashley, after considering a partnership with Sport 2000 International, to have access to affordable products at interesting margins in order to compete with the two leaders in the Portuguese market, Décathlon and SportZone. While Décathlon has opened many new stores in the country lately, SportZone has been expanding into Spain in order to obtain higher economies of scale.
Mega Sport’s 15 stores range in size between 300 and 2,000 square meters, or an average of 800 m². They are mostly located north of Porto. They will all renamed Sports Direct by next April and then rolled out throughout the country. By rebranding it, the chain will also avoid confusion with a Mega Sport store in Algarve that doesn’t belong to it.
Meanwhile, Sports Direct reported a 40 percent jump in underlying pre-tax profit to £100.7 million (€118.9m-$156.3m) for the 24 weeks ended last Oct. 24. The management of the leading British sports retailer and brand owner said it continued to perform strongly in the subsequent two months. It added confidence of reaching a previously stated target of £205 million (€242.0m-$318.2m) in adjusted operating profit before amortization (Ebitda) for the current financial year, in spite of a likely tough start in 2011, triggering the bonus share program introduced last year to reward its employees.
Boosted in part by higher consumer demand ahead of the Fifa World Cup, the company’s total revenues increased by 8.3 percent to £819.9 million (€967.8m-$1,273m) in the first half of its financial year. Retail sales were up by 9.9 percent to £644.3 million (€760.5m-$1,000m) in the U.K.
In other countries, the group’s retail sales grew by 4.6 percent to £66.5 million (€78.5m-$103.2m), with a 9 percent increase in local currencies. Revenues from Dunlop and the other brands owned by the group declined by 4.7 percent to £90.6 million (€106.9m-$140.6m), but the figure included a 7.0 percent increase in revenues from licensing to £12.3 million (€14.5m-$19.1m).
Online sales rose sharply to 6 percent of total U.K. retail sales, double the ratio of the year-ago period, thanks in part to television advertising and to the fact that 316 of its 394 stores in the U.K. are now branded sportsdirect.com. A second TV campaign was launched this past autumn, resulting in a further increase in web traffic.
The decline in the wholesale business was planned, as the group is shifting a growing portion of the related turnover to higher-margin licenses. In the first half, the company signed 42 new contracts involving minimum royalties of $46 million over the life of the contracts.
The group’s gross margin improved by 1.9 percentage points to 42.6 percent, with the margin on U.K retail operations up by 1.8 points to 43.4 percent and the margin on the brands business up by 3.5 points to 40.8 percent because of a greater proportion of licensing revenues.
Excluding foreign currency adjustments, the underlying Ebitda went up by 32.5 percent to £131.3 million (€155.0m-$203.8m), after a charge of £5.3 million (€6.3m-$8.2m) for employee bonuses. By division, Ebitda grew by 33.3 percent to £114.1 million (€134.7m-$177.1m) for U.K. retail, by 35.1 percent to £10.0 million (€11.8m-$15.5m) for international retail, and by 28.3 percent to £11.8 million (€13.9m-$18.3m) for the brands division.
Despite the poor performance of the English team during the World Cup, the event had the effect of boosting the Ebitda of Sports Direct’s U.K. retail division by between £15 million and £20 million.
Among the highlights during the 23-week period, Sports Direct opened a Nike Academy at its own Shirebrook headquarters last July to train its whole retail staff in the U.K. in close partnership with the American brand. The initiative was described as a first in Nike’s history.
Debt was reduced by 25.1 percent to £233.6 million (€275.7m-$362.6m) during the period, but a dividend is not yet in sight.
