JD Sports records record profits in the face of "numerous challenges"
JD Sports has shrugged off numerous challenges in the six month period ending 31 July 2021 – from "materially lower" footfall due to do Covid-19 and international supply chain issues – to deliver a record profit.
The sports giant posted profit before tax and exceptional items of £439.5 million during the period (up from £61.9m in the prior year) on the back of revenues up 53% at nearly £3.9bn. Gross margin also improved at 48.5% (up from 45.6%).
During the period the group was highly active on the acquisition front acquiring MIG in Poland and DTLR in the US. The US proved a particularly strong market for JD Sports with aggregate profit before tax and exceptional items from the region up to £245m, which includes, a total contribution of £72.9m from the recently acquired Shoe Palace and DTLR businesses.
In its core market of the UK and Republic of Ireland profit before tax and exceptional items increased to £170.8m (2020: £52m; 2019: £114.9m) with a strong retention of sales through digital channels in the first quarter while the stores were temporarily closed combined with strong pent-up demand after reopening.
One low point for JD Sports is the CMA's decision to stand by its move to block its acquisition of smaller rival Footasylum claiming it will lead to poorer choice for consumers in the market. JD has contested this assertion but it is possible it will have to divest the business. However its appetite for acquisition seems undimmed as it is one of a number of parties (including, it is believed, Asda) who are interested in taking a stake in fast fashion brand Missguided. JD missed out on acquiring Topshop from the collapsed Arcadia Group, with the business going to ASOS.
Executive chairman Peter Cowgill said of the performance: "The Group continues to demonstrate outstanding resilience in the face of numerous challenges arising from the continued prevalence of the COVID-19 pandemic in many countries, widespread strain on international logistics and other supply chain challenges, materially lower levels of footfall into stores in many countries after reopening and the ongoing administrative and cost consequences resulting from the loss of tariff free, frictionless trade with the European Union. Given these challenges, the record result that the Group has delivered in the first half with a profit before tax and exceptional items of £439.5 million (2020: £61.9 million; 2019: £158.6 million) is extremely encouraging.
"It is most reassuring that the core JD business in the UK and Republic of Ireland performed strongly in the first half delivering a profit before tax and exceptional items of £170.8 million (2020: £52.0 million; 2019: £114.9 million). This result also includes a particularly strong performance from the Group's banners in the United States which have delivered a combined profit before tax and exceptional items of £245.0 million (2020: £73.4 million; 2019: £35.7 million).
"Ultimately, the Group is at the pinnacle of the global sports fashion industry with consumers instinctively knowing that our retail propositions focus on their fashion desires and aspirations in both footwear and apparel, with an agile multichannel ecosystem delivering the highest standards of retail execution and consumer experience. This is respected by the international brands who regularly call JD out as a premier global strategic partner.
"We remain absolutely confident that our inherent strengths in retail dynamics and operations provide us with a robust platform to make further progress.
"At this time, we are generally encouraged by our performance in the first few weeks of the second half although retail footfall remains comparatively weak in many countries. Assuming a prudent but realistic set of assumptions for the peak trading period ahead which take into account the absence of stimulus in the United States for the second half of the year, in addition to current industry-wide supply chain challenges, we presently anticipate delivering a headline profit before tax for the full year of at least £750 million.
"The JD brand is increasingly recognised on a global basis and this result bears testimony to the underlying strength of our business. I would like to express my sincere thanks and gratitude to everyone in all of our Group businesses for their remarkable contribution in delivering these excellent results during such a challenging period."
Analyst reaction
Russell Pointon, Director, Consumer, at investment research and consultancy firm Edison Group:
"Amidst news that JD Sports’ may be forced to sell Footasylum following the CMA's repeated prevention of the takeover, the Group's interim results show a strong performance for the six months to the end of July. Profit before tax and exceptional items reached record highs of £439.5 million, a notable increase from £61.9million in 2020, driven by strong revenue growth of c 53% to £3,885.5 million, and an improvement in the gross margin to 48.5%. At the end of the period, the Group had net cash of £995.1 million, up from £764.9 in 2020.
"Throughout lockdowns JD Sports has benefited from a well-established e-commerce offering. The Group noted that revenues through digital channels remain high compared to the pre-pandemic levels, representing approximately 30% of total sales since the stores could reopen. Strategic investments into new logistics sites across the UK, Ireland and Europe indicate that the Group is confident in its ability to maintain growth across its online retail channels. The Group noted that headline profit before tax for the full year is expected to be at least £750 million. Whilst shareholders may be disappointed to see no interim dividend payments, as we build towards a peak period for retail over the Christmas months, they may well be rewarded with a larger full year dividend."
