Despite an increase in total revenues of 9 percent to £1.37 billion (€1.59bn-$2.26bn) for the fiscal year ended April 26, Sports Direct International had to endure a 91 percent drop in pre-tax profits to £10.7 million (€12.4m-$17.7m). Foreign exchange cost the company £27 million, and write-downs another £31 million. Without these various charges, profits for the year would have dropped by 20.2 percent to £68.2 million (€79.1m-$112.5m).
The group had to book a net loss of £15.5 million (€18.0m-$25.6m) for the year, compared with profit of £77.7 million the year before. The negative result was partly due to a £53 million (€61.5m-$87.4m) loss from the “de-recognition” of investments made by Sports Direct in the equities of other sports companies. As of last April 26, the company says it had stakes of 28.85 percent in Blacks Leisure, 13.31 percent in JD Sports Fashion and 4.76 percent in JJB Sports, but the company indicates that only its previous investments in Adidas, JJB Sports and JD Sports are derecognized.
Kaupthing Singer & Friedlander, the beleaguered Icelandic bank, held the stakes, and when it went into administration last year, the issue of their ownership came into question. The issue is still unresolved, and Sports Direct is currently arguing over it with Ernst & Young, Kaupthing’s administrators, but for now concedes that it does not control these shares for accounting purposes.
The group’s gross margin fell by 2.8 percentage points to 40.8 percent, and the company said this was almost entirely because of the weakened pound. The gross margin in the U.K. retail division fell to 42.5 percent from 45.7 percent in the previous year, but the average contribution to the gross profit of each store increased by 2.5 percent, the company stresses. The gross margin in the brands division fell from 40.2 percent to 38.3 percent due to an increasingly competitive global market.
Earnings before interest, tax, depreciation and amortization (Ebitda) fell by 8.9 percent to £136.8 million (€158.7m-$225.7m). The regular operating profit (Ebit) went down by 38.1 percent to £67.8 million (€78.6m-$111.9m). The management is expecting its underlying Ebitda of at least £140 million for the current financial year.
The company’s retail sales increased by 11.4 percent in the U.K. and by 32.3 percent in other countries, reaching values of £1,006.5 million (€1,167.5m-$1.660.6m) and £102.3 million (€118.7m-$168.8m), respectively, without including property transactions and other income. Sales outside the U.K. rose by 12.3 percent on a currency-neutral basis, and the gross margin on these operations grew by 1.7 percentage points.
The company said it recorded 7.49 percent fewer customer complaints in the past year. Sports Direct said it was hurt in the first half of the year when none of the U.K. teams made it to the Euro 2008 football championship. It expects a possible boost from the 2010 World Cup, if any of them qualify, but then it wouldn’t see the benefits until its 2010-11 balance sheet.
Sports Direct consolidated its leadership in the British sports retail market, partly through the opening of 27 new stores, but 40 other smaller non-core stores were closed. The total door count in the U.K. fell by 16 units to 359 in the course of the year, but their combined retail sales space rose from 3.4 to 3.5 million square feet approximately. The number of so-called “core stores” increased from 272 to 292. All new stores operate under the sportsdirect.com banner, and between 10 and 15 new ones are planned for this year.
In addition Heatons, an Irish company in which it has a 42.5 percent stake, opened nine stores, taking the tally on the island up to eight units in Northern Ireland and 22 in the Republic of Ireland. Seven other stores were opened by Sports Direct in Continental Europe, and another three to five are expected to open in the current fiscal year. As of last April 26, Sports Direct operated 43 stores in Belgium, 13 in Slovenia, four in the Netherlands, two in Cyprus and one in Luxembourg at the end of the last financial year. The stores in Cyprus are run through a local partner.
The growth of Sports Direct’s international retail sales could be attributed chiefly to its business in Belgium, where it opened four new stores. Sports Direct Belgium has expanded fast in the last years, contributing to the woes of Go Sport and Intersport in the country. While the former has entirely pulled out, the latter has seen its Belgian network roughly halved in the last two years.
In the brands division, sales were up by 19.7 percent (4.7 percent at constant currencies), to $230.6 million with growth of 18.7 percent for wholesale revenues and 27.5 percent for licensing income. Some of the growth came from acquisitions. Among the brands that Sports Direct manages or licenses are Dunlop, Everlast, Slazenger, Donnay, Kangol and Lonsdale.
Forty-one new licensing deals have been signed to bring in at least $60 million in revenues. The company sees most of its foreign growth in the brands division coming from licensing, and called attention especially to Everlast.
Sports Direct will not be paying out a dividend in an attempt to cut its £430 million (€498.8m-$709.4m) in debt; this action should save about £14 million (€16.2m-$23.1m) this year. It expects its debt to go below £400 million. It says it has enough funding to last through April 2011, but will start talking to its banks about additional funding later this year.
