JD Sports grows FY profits but warns on future viability - Just Style
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JD Sports grows FY profits but warns on future viability

By Michelle Russell 07 Jul 2020

JD Sports Fashion Plc saw earnings and sales grow in its last financial year but has warned the future viability of the business is uncertain due to the pandemic and has called for "realism" on rents and leases as the coronavirus continues to impact trading.

JD Sports grows FY profits but warns on future viability

JD Sports Fashion Plc saw earnings and sales grow in its last financial year but has warned the future viability of the business is uncertain due to the pandemic and has called for “realism” on rents and leases as the coronavirus continues to impact trading.

Pre-tax profit at the group, which operates over 900 stores, rose 3% to GBP348.5m (US$435.5m) for the year ended 1 February, from GBP339.9m a year earlier, while gross margin narrowed slightly to 47% from 47.5%.

Sales, meanwhile, jumped 30% to GBP6.11bn in the period before the Covid-19 outbreak hit Europe and lockdown was enforced. The increase was driven by 12% like-for-like sales growth in JD’s global Sports Fashion fascias, including more than 10% growth in its core UK and Republic of Ireland fascias. These stores include JD, Footpatrol, Size?, Sprinter and Tessuti.

An “encouraging” performance was also recorded in the US, with operating profit before exceptional items of GBP97.9m from GBP26.6m a year earlier thanks to 9% like-for-like sales growth for the 52 week period across the combined Finish Line branded stores and website.

Like-for-like store sales across all group fascias increased by 6%, with the total like for like growth including online increasing by 10%.

The retailer, which put its Go Outdoors business through a pre-pack administration last month, began reopening stores in some countries from the end of April with the majority of the group’s stores now trading again. It said initial footfall has been weaker in malls and shopping centres, particularly in Northern Europe, as consumers remain “nervous” about the risks associated with densely occupied enclosed spaces.

“Whilst Covid-19 has constrained our short term progress, it is important that we do not lose sight of the core retail standards and commercial disciplines which have underpinned our longer term growth to date,” said Peter Cowgill, executive chairman.

“We were encouraged by the continued positive trading in the early weeks of the year prior to the emergence of Covid-19 and we firmly believe that we are well placed to regain our previous momentum. Looking longer term, there is inevitably considerable uncertainty as to what the effect of Covid-19 will be on consumer behaviour and footfall with future store investments highly dependent on rental realism and lease flexibility. Ultimately, however, we remain confident that we have a market leading multi-channel proposition which has the necessary flexibility and agility to prosper within a retail environment that may see profound and permanent structural change.”

In its supply chain, JD has opened an 80,000sq ft warehouse in Belgium which has now started to receive stocks and is fulfilling product to some European stores. The company said the facility will provide it with “a number of learnings which we can use to shape our longer term European supply chain strategy”, as well as help mitigate some of the potential additional duty costs which may arise from January 2021 if the UK exits the EU without an appropriate trade agreement.

The retailer has also invested further in its principal warehouse in Rochdale to allow for more flexibility in its operational infrastructure to deal with additional online volumes more efficiently.

“Only a relatively short period of time has elapsed since the re-opening of stores in our core market,” JD said in its trading update. “This, combined with the continued uncertainty around the recovery of footfall and the application of social distancing measures across many of our territories, means that it is too early to extrapolate this performance and give meaningful guidance for profits in the current year. However, we were encouraged by the continued positive trading in the early weeks of the year prior to the emergence of Covid-19 and we firmly believe that we are well placed to regain our previous momentum.”

Longer term, the company said there is “inevitably considerable uncertainty” as to what the effect of Covid-19 will be on consumer behaviour and footfall with future store investments highly dependent on “rental realism and lease flexibility”.

“Ultimately, however, we remain confident that we have a market-leading multi-channel proposition which has the necessary flexibility and agility to prosper within a retail environment that may see profound and permanent structural change,” it added.

“Well-positioned” to navigate Covid

Emily Salter, retail analyst at GlobalData, says JD Sports has delivered results other clothing players would envy but adds the company now has plenty of problems on its plate trying to make a success of recently bought back Go Outdoors and appealing the CMA’s decision on Footasylum, all whilst weathering the Covid-19 storm.

She notes, however, JD Sports is well-positioned to navigate the crisis as its sports fashion brands, which made up 93.2% of total revenue in the period, are more protected due to their focus on athleisure and core customer base of loyal, young shoppers.

“These consumers are more likely to have spent on clothing and footwear during the lockdown, and are the most enthusiastic to return to shops, with 69.7% of 16-24s feeling comfortable to return, according to GlobalData’s survey of 2,000 nationally representative UK consumers in June.”

Meanwhile, Salter says Covid-19 has hit JD Sports’ “already struggling” outdoor fasicas the hardest, with Go Outdoors, in particular, left exposed by a high reliance on store sales and the brand falling into administration in June.

“The retailer must decrease the brand’s reliance on physical stores to ensure its future viability as the Covid-19 crisis has accelerated the shift of spend to online, and permanent store closures are highly likely,” she adds. “JD Sports, in particular, has long recognised the growing importance of the online channel, introducing initiatives to capitalise on this such as Klarna and JDX, its loyalty scheme. This is especially important to protect shopper loyalty as key brands such as Nike and Adidas increasingly prioritise their direct to consumer channels.

“The retailer has been wise to expand its presence internationally to reduce its reliance on Western Europe, opening stores in Europe, APAC and the US during the period. However, these openings will be extremely impacted by Covid-19 in the US and Europe due to constrained footfall, especially in shopping centres, and will continue to be affected throughout 2020 due to economic uncertainty. JD must ensure that it grows its online sales in these countries to mitigate low footfall, using its stores to promote brand awareness.”

Neil Shah, director of research for Edison Group, adds that with many high street retailers now tentatively reopening, interesting times lie ahead for JD Sports and the wider sector.

“The sports- fashion retailer has found that, although shoppers are much more likely to buy rather than simply browse for items when in-store, the general public remains nervous about coming into close contact with others and as a result many of their shopping-mall-based sites have been little visited.

“As the extent to which consumer behaviour has been affected by lockdown is still largely unknown, there is considerable uncertainty around how the company will fair in the longer-term. It will be interesting to see how JD Sport fares over the coming period.”