Sport now consists of the Sports retail businesses of JD, Size?,
Chausport, Sprinter, Champion Sports and ActivInstinct together
with Topgrade, Kooga, Kukri, Focus and Source Lab. The latter were
formerly included within our Distribution segment but in our
streamlined segmental structure are now classified within Sport as
the product which they deal in is predominantly either active sport
or sports fashion related.
Sport has had an excellent year. Operating profit (before
exceptional items) of the Sport businesses increased significantly
by GBP15.5 million to GBP93.4 million (2013: GBP77.9 million
including GBP1.9 million in relation to Canterbury). This is an
exceptional performance but one that reflects the continual
investment we make in our retail and product propositions. The
growth in profitability within Sport principally came from a strong
performance in our core UK and Ireland retail fascias. JD is
developing into a world class retail fascia and our ultimate
objective is to ensure that the high standards in our core UK and
Ireland markets are transferred to our new territories as JD
becomes increasingly international.
We are satisfied with the performance of our businesses in
France. By year end we had 17 JD stores in the country (excluding
the Size? store in Paris), after seven new store openings in the
year. Subject to property availability, we anticipate continuing
our store development in this territory.
Our businesses in Spain have had an encouraging year again,
which is pleasing given the well publicised economic difficulties
which the country has faced. We have an excellent management team
in Spain who understand the geography and the local consumers very
well and they have very successfully adapted the Sprinter product
proposition to reflect customer demands at this time. The economic
situation has meant that, to date, we have been more cautious in
our programme for JD in Spain. During the year, we opened three new
stores and so have eight stores in the country now. We have worked
hard with the Sprinter management team to make the JD product
proposition more relevant for the country.
During the year, we acquired a package of stores in the
Netherlands from a local fashion retailer which was looking to
close one of its fascias. Acquiring the stores in this way gave us
immediate critical mass in the country although the majority of the
stores are in smaller regional towns and cities. We also acquired
the assets of the Isico partnership in Germany which, on
acquisition, had 10 small stores primarily in the Berlin area.
These stores will be converted to the JD fascia later in 2014 and
have already been integrated into the Group's core IT systems. We
continue to look for further opportunities in international markets
around the world where we can grow with the support of our key
brands.
Fashion
Fashion now consists of the established Fashion retail
businesses of Bank, Scotts and Tessuti, together with Cloggs and
Ark, which were both acquired during the year, and Nicholas Deakins
which was formerly included within our Distribution segment but in
our streamlined segmental structure is now classified within
Fashion.
Losses in Fashion (before exceptional items) increased
significantly in the year to GBP6.4 million (2013: GBP1.7 million),
principally as a result of increased losses at Bank. Losses of this
scale are disappointing and we have made management changes to
address the issue. Most importantly, in July a new Managing
Director, Gwynn Milligan, who has considerable experience of the
Youth Fashion sector, came into the Bank business. Her turnaround
plan involves both re-establishing Bank's reputation in branded
fashion whilst relying on a flexible supply chain to produce faster
fashion and more striking value in the price architecture. On the
back of this we believe that expanding Bank's multichannel
proposition represents a major opportunity. We have taken some
internal actions to reduce the central overhead base but we also
need to address property costs which are excessive in some legacy
leases. We believe that, with the right blend of desirable third
party brands supported by credible own brand ranges, Bank can
re-engage with its core customers and that ultimately we can
deliver an improved financial performance. We have recognised a
charge of GBP11.8 million within exceptional items for the
impairment of goodwill which arose on the original acquisition of
the business.
The Scotts business has performed well in the year by focussing
on its core customers and then delivering a multichannel branded
fashion authority and experience to them.
Whilst we continue to experience losses in our Premium Fashion
offering (Tessuti and Originals), they have been reduced compared
to the prior year. As we have reported previously, we have a number
of legacy issues, particularly property, to deal with which are
impacting on the financial performance at this time. However, we
have made a number of operational improvements to the business
during the year with all stores now on the Group's core ERP systems
and all stocks now replenished from the Group's Kingsway warehouse.
Accordingly, we believe that we are putting the right framework in
place to deliver an improved financial performance.
During the year we acquired the Cloggs and Ark businesses from
administration. Cloggs is an established online retailer of premium
branded fashion footwear whilst Ark is a complementary business to
Bank in terms of its customer demographic and product proposition.
Both of these businesses have had a difficult year as they
recovered from the administration processes and rebuilt their
supply chains and supplier relationships. It is too early to
comment on the longer term potential of these businesses.
Outdoor
Our pre-existing Blacks and Millets Outdoor fascias have had a
mixed year. We started the year with an excess of heavy winter
jackets and a lack of Spring / Summer product, particularly in
camping and Peter Storm own brand. We had to trade our way out of
this position with the significant margin sacrifice required to
clear the Winter and earlier season stocks leading to a poor first
half trading result. However, the second half of the year, which we
acknowledge is traditionally the stronger part of the year, has
been much more promising and, ultimately, a breakeven position was
achieved in this six month period compared to a loss of GBP4.9
million in the same period of the previous year.
Operationally, we have made a number of significant operational
changes which mean that these businesses are now better controlled
and so we have started the new financial year with a substantially
improved framework on which to develop. These changes can
essentially be categorised into two main areas:
-- Whilst there is some commonality of product ranges and brands
we believe that Blacks and Millets attract different consumers.
Accordingly, we have run Blacks and Millets as two separate fascias
since the middle of the year with separate and significantly
changed commercial teams. We believe that this decision has had
positive effects in testing and developing the Outdoor proposition
both instore and online. We are now working to ensure that all of
our customers have easy access to our full Outdoor offer.
-- We also integrated Blacks into the Group's operational
infrastructure by relocating the warehousing and central functions
from the previous facility at Northampton and installing the Group
ERP systems. Whilst the warehousing move and the installation of
the Group core systems were completed by the end of Q1, the final
relocation and establishment of the Bury based new commercial teams
did not complete until July. Clearly, this had a disrupting effect
in the early part of the year but completion of the reorganisation
together with the elimination of the unsustainable property costs
associated with the Northampton facility have had positive effects
on the business in the second half.
Later in the year we acquired 60% of the loss-making Tiso
business which, on acquisition, had 17 premium branded Outdoor
stores. These stores are primarily located in Scotland, although
Tiso also owned the highly regarded and profitable George Fisher
store in Keswick. Tiso is an iconic business in the Scottish
Outdoor world and this acquisition has given us increased buying
power, additional management expertise and brand access, as we
continue to establish JD Sports Fashion's leading position in the
Outdoor market.
Overall losses (before exceptional items) in Outdoor have
reduced significantly to GBP8.8 million (2013: GBP14.9 million). We
anticipate further significant progress in Blacks and Millets in
the new financial year tempered by some initial operating losses
from the newly acquired Tiso business.
Financials Summary
Revenue
Total revenue increased by 5.7% in the year to GBP1,330.6
million (2013: GBP1,258.9 million including GBP33.5 million in
relation to the Canterbury business which was disposed in the
year). Like for like sales for the 52 week period in the UK and
Ireland combined core retail fascias increased by 6.7% which was an
excellent performance.
Gross margin
Total Gross Margin fell from 48.7% to 48.5% reflecting the
impact of the considerable margin sacrifice in the Blacks and
Millets fascias, principally in the first half, as we cleared
excess winter stocks and additional markdown activity in our
Fashion retail businesses. We are, however, greatly encouraged by
the robust performance in our Sports businesses where margins were
maintained at prior year levels.
Operating profits
Operating profit (before exceptional items) increased
substantially by GBP16.9 million to GBP78.2 million (2013: GBP61.3
million) with an exceptional performance in Sport and a reduction
in the losses in Outdoor. We expect further significant progress in
Outdoor in the new financial year.
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