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Sports Direct's H1 profits rise, bullish on recovery at House of Fraser

By Prachi Singh

Dec. 16, 2019


Group revenue for the first half year at Sports Direct International was up 14 percent to 2,043.5 million pounds (2,740 million dollars), which the company said was largely due to acquisitions contributing 222.5 million pounds, growth in premium lifestyle, growth in wholesale and licensing and the full period of revenue from House of Fraser. Excluding acquisitions, and on a currency neutral basis, the company added, group revenue was down 6.4 percent. Gross margin increased 230 basis points to 43.8 percent and underlying EBITDA improved 21.8 percent to 181.2 million pounds (242.6 million dollars) driven by the growth and improved profitability in the premium lifestyle and European retail divisions. Excluding acquisitions and on a currency neutral basis underlying EBITDA was up 15.1 percent.

Commenting on the first half trading, Founder and Chief Executive of the company, Mike Ashley said in a statement: “At the full year FY19 results, we concluded we could not reasonably predict where our FY20 results were going to land based on the uncertainty caused by the House of Fraser acquisition and the “significant operational and investment issues we are trying to rectify based on the appalling mismanagement of House of Fraser, prior to its acquisition by the Sports Direct Group, that led to its downfall. House of Fraser estate, at least over this Christmas period 2019 is secure. Based on the above we believe our total group underlying EBITDA will grow between 5 to 15 percent from the FY19 pre-House of Fraser underlying EBITDA figure of 339.4 million pounds. This gives a range of between 356.4 million to 390.3 million pounds for the year ending April 26, 2020.”

Review of Sports Direct’s first half performance

The company said, UK Sports Retail sales increased by 6.7 percent but excluding acquisitions revenue fell 8.6 percent due to the continuing elevation strategy. The company continues on target to open approximately 10 to 15 elevated stores during FY20. UK Sports Retail gross margin increased by 280 basis points to 43.4 percent, while loss from associates totalled 5.6 million pounds compared to 0.6 million pounds in the same period last year. UK Sports Retail underlying EBITDA decreased by 5.3 percent to 139.9 million pounds as a result of associate losses and acquisitions of Game Digital UK and Jack Wills.

Sales in the premium lifestyle Segment, were up by 79.2 percent to 282.6 million pounds (378.5 million dollars) largely due to the increased sales through new Flannels stores/online and a full 26-week period in FY20 H1 v/s since acquisition on August 10, 2018 for House of Fraser in FY19 H1. The company plans to open between 5 to 10 elevated stores during FY20. GTV Gross margin increased to 36.8 percent and premium lifestyle underlying EBITDA improved from a loss of 29 million pounds to a loss of 5.6 million pounds (7.5 million dollars).

European Retail sales increased by 16.7 percent, on a currency neutral basis and excluding acquisitions revenue fell 6.1 percent. During the period, gross margin decreased by 210 basis points to 41.4 percent and excluding acquisitions gross margin was up 180 basis points. European Retail underlying EBITDA increased by 71.4 percent to 32.9 million pounds (44 million dollars), excluding acquisitions and on a currency neutral basis, underlying EBITDA increased 64.7 percent.

The company further said, Rest of World retail sales decreased by 8.5 percent and on a currency neutral basis revenue fell 12.5 percent largely due to the rationalisation of the Bobs retail estate combined with implementing the elevation strategy.

Sports Direct posts rise in wholesale division revenue

Wholesale & Licensing division total revenue increased by 14.9 percent to 92 million pounds (123 million dollars), while wholesale revenues were up 19 percent to 77.8 million pounds (104 million dollars) and excluding acquisitions wholesale revenue was up 9.8 percent. Licensing revenues in FY20 H1 decreased 3.4 percent to 14.2 million pounds (19 million dollars). Wholesale gross margin decreased by 30 bps to 28.3 percent and total gross margin therefore decreased to 39.3 percent with a fall in licensing revenue. As a result, underlying EBITDA in the division increased 4.4 percent to 16.5 million pounds (22 million dollars).

Picture credit:FashionUnited