JD Sports defies Brexit to deliver strong growth numbers
In this article (5)
UK sportswear business JD Sports Fashion saw revenue improve 47 percent over the first half of FY20 to £2.72 billion, with global like for like sales growth of 12 percent.
The group, which runs the JD Sports chain in Australia, also saw group profit before tax and exceptional items increased 30 percent to £158.6 million, up from the £121.9 million seen in the prior corresponding period.
According to JD Sports executive chairman Peter Cowgill, the management team is very pleased with the result, especially given the ongoing challenge of Brexit’s impact on retail in the UK.
“We recognize that there is heightened uncertainty surrounding the nature of the UK’s exit from the European Union, and we are very cognizant of the increased risk of a disorderly exit,” Cowgill said.
The group’s sports fashion businesses saw a strong half, with profit before tax and exceptional items growing 43 percent to £182.4 million.
“The combined JD businesses in the Asia Pacific region delivered total like for like growth of just under 10 percent, although the earlier timing of Chinese New Year relative to last year did impact on the performance of the business,” Cowgill said.
“We continue to make learnings in all of our territories which we use to further refine our integrated digital propositions and, with the ongoing support of our key brand partners, we remain confident that further opportunities will prevail to expand the reach of our exciting and dynamic proposition in the region,” Cowgill said.
Cowgill noted that, in the Asia-Pacific region, JD Sports opened seven new stores during the period across Malaysia, Singapore, and Australia.
JD’s outdoor business, however, saw more mixed results – finishing the first half with a loss before tax and exceptional items of £20.1 million, compared to the 3.8 million loss seen during the prior period.
This was due to a challenging first quarter, compounded by a £20.7 million partial impairment due to goodwill from previous years on the acquisition of the Go Outdoors business.
“This was due to a challenging first quarter, compounded by a £20.7 million partial impairment due to goodwill from previous years on the acquisition of the Go Outdoors business.”
Preparing for a no-deal exit
According to Cowgill, the business is well aware of the risk a no-deal exit from the EU would pose to JD Sports, and the UK retail industry as a whole.
As a result, JD Sports has pulled forward a plan to expand warehouse space in Belgium in order to better serve its EU customers in the event of a no-deal.
“The group always expect that, for operational purposes, a European warehouse would be required sometime after 2021 with the risks associated with Brexit bringing this decision forward,” Cowgill said.
“We are working with our logistics partners to secure an additional 80,000 square foot of space at a facility in Belgium which will provide us sufficient capacity to process launch product for footwear for the key brands.”
Cowgill added that the facility will be available for use in early 2020.
The looming threat of Brexit has also touched the group’s outlook for the remainder of the year, as well as a shift to a different leasing standard, IFRS 16.
“Notwithstanding the ongoing uncertainty with regards to Brexit… the group would have been on track to deliver headline profit before tax for the full year at the top end of market expectations which currently rage from £402 million to £424 million,” Cowgill said.
“However, after adjusting for the impact of the transition to IFRS 16, we would expect to deliver results at the mid-point of expectations.”
Questions & Answers
Q.Which areas of JD Sports' business performed well in the first half of FY20?
Which areas of JD Sports' business performed well in the first half of FY20?
The group's sportswear business saw strong growth, with profit before tax and exceptional items increasing 43 percent to £182.4 million. The combined JD businesses in Asia Pacific also delivered nearly 10 percent like-for-like growth.
Q.What impact did Brexit concerns have on JD Sports' operational plans?
What impact did Brexit concerns have on JD Sports' operational plans?
Due to Brexit risks, JD Sports brought forward plans to expand warehouse space in Belgium. They are securing an additional 80,000 square feet there to process launch products for footwear for EU customers, available in early 2020.
Q.How did the outdoor business segment perform compared to the rest of the group?
How did the outdoor business segment perform compared to the rest of the group?
The outdoor business had mixed results, finishing the first half with a loss of £20.1 million before tax and exceptional items. This was worse than the prior period and included a £20.7 million impairment from the Go Outdoors acquisition.
Q.What is the expected impact of the IFRS 16 accounting change on full-year profits?
What is the expected impact of the IFRS 16 accounting change on full-year profits?
After adjusting for IFRS 16, JD Sports expects to deliver full-year headline profit before tax at the mid-point of market expectations. Without this change, they would have been on track for the top end of the £402 million to £424 million range.
Reader pulse
Is JD Sports' EU warehouse move a smart hedge?
17,337 votes so far