JD Sports Fashion Plc (LON:JD), the leading retailer of sports, fashion and outdoor brands, has announced its interim results for the 26 weeks ended 29 July 2023 (comparative figures are shown for the 26-week period ended 30 July 2022).
DELIVERING ON OUR STRATEGY; STRONG SALES GROWTH & PROFIT ON TRACK
Commenting on the results, Régis Schultz, Chief Executive Officer of JD Sports Fashion Plc, said:
“We have delivered a strong first half to our financial period with organic sales growth1 of 12% and profit on track for the full year. In line with our strategic plan, growth is being driven by our premium Sports Fashion business with an impressive performance in Europe (+27%) and North America (+15%), supported by a strong performance in our more mature UK market (+8%). This performance continued in the important back to school period.
“We have made good progress delivering on our strategic pillars, focusing on expanding the JD brand and we will open more than 200 JD stores worldwide in this financial period. We are going to accelerate JD brand growth in Europe through purchasing the non-controlling interest in both ISRG and MIG, and the acquisition of GAP stores in France. This is alongside the proposed acquisition of Courir in the region, which will, when completed, enhance the Group’s existing portfolio of complementary concepts, bringing into the company its market-leading focus on the female customer. Meanwhile, we are building and investing in talent and infrastructure to support future growth.
“Our first half performance would not have been possible without the efforts of our people across the world and I am extremely grateful for their continued hard work and commitment. I would also like to thank outgoing CFO Neil Greenhalgh specifically for his support since I joined and for his years of service to JD. I look forward to working with Dominic Platt, who will start as our new CFO in October 2023.
“Looking ahead, our core consumers remain resilient in the face of the ongoing global macro-economic challenges. The JD brand continues to strengthen its global presence, supported by our strategic partnerships with much-loved brands and our strong balance sheet.”
Performance summary
| 26 weeks to | 26 weeks to | Year | |
| 29 July | 30 July | on | |
| 2023 | 2022 | Year | |
| £m | £m | £m | |
| Revenue2 | 4,783.9 | 4,418.1 | 8.3% |
| Gross Profit %2 | 48.0% | 48.5% | |
| Operating profit before adjusted items1 | 398.4 | 418.1 | (4.7)% |
| Net interest expense | (24.9) | (34.6) | |
| Profit before tax and adjusted items1 | 373.5 | 383.5 | (2.6)% |
| Net cash at period end3 | 1,276.5 | 1,013.1 | 26.0% |
| Statutory measures | |||
| Operating profit | 400.1 | 332.9 | 20.2% |
| Net interest expense | (24.9) | (34.6) | |
| Profit before tax | 375.2 | 298.3 | 25.8% |
| Basic earnings per share (GBp) | 4.65 | 3.58 | 29.9% |
| Adjusted earnings per share1 (GBp) | 4.62 | 5.23 | (11.7)% |
| Interim dividend per share (GBp) | 0.30 | 0.13 | 130.8% |
1Alternative performance measure (APM) – further detail setting out the background to the APMs (and a reconciliation to statutory measures) is provided after the CFO Review
2This period reflects the reclassification of delivery income from operating costs to revenue, in line with the FY23 year end. Nil cash and profit impact but +30 basis points impact on GP% and -30 basis points impact on operating costs as a % of revenue
3Net cash consists of cash and cash equivalents less interest-bearing loans and borrowings
Financial highlights
· Group revenue growth of 8% to £4,783.9m and 12% on an organic1,3 basis, reflecting the impact of non-core UK divestments
· Premium Sports Fashion delivered 15% organic growth, or 9% like-for-like1,4 (LFL); further market share gains in key regions
· Gross margins robust at 48% and well above pre-pandemic levels; H1 more normal promotional environment
· Strong performance from our North America premium Sports Fashion fascias: organic growth of 15%, LFL growth of 9% and EBIT up 12%
· Group Profit before Tax and adjusted items of £373.5m, reflecting a more normal H1 contribution of c.35% and investment in our people, systems and supply chain. After incorporating the adjusted items, Group Profit before Tax was £375.2m
· Balance sheet net cash of £1,276.5m, up £263.4m versus 12 months ago
· Inventory levels well managed and in line with sales growth expectations
· Interim dividend increased; returning to pre-pandemic dividend cover1
Strategic highlights
· Delivering progress on all key elements of our strategy
· On track to add over 200 new JD stores globally by January 2024
· Strong trading from US complementary concepts DTLR and Shoe Palace
· New distribution centres on track and began loyalty trial in the UK
· Strong relationships with key brand partners
· New leadership and organisation structure embedding well
3Total sales excluding acquisitions and disposals but including new stores
4Same stores trading for at least 12 months
Current trading and outlook
In the last seven weeks, trading across the Group has continued in line with our expectations. At constant exchange rates, organic sales growth1 was 10%. In addition, we have continued to open new JD stores worldwide and are on track to meet our full-year store targets.
We are acutely aware of how tough the macro-economic environment is for consumers across the world. Despite this context, assuming current exchange rates, we expect the Group’s headline profit before tax and adjusted items for the 53-week period ending 3 February 2024 will be in line with the current market consensus expectations of £1.04 billion.
Chief Executive Officer’s Review
Performance
Group
Performance for the 26 weeks to 29 July 2023 was in line with our expectations. The Group grew revenue by 8% to £4,783.9m, including the impact of non-core divestments in the UK. In constant currency1 terms, total revenue growth was 7% and organic1 sales growth was 12%, maintaining the trend seen across the previous financial period. LFL sales growth, excluding new sites opened during the last 12 months, was 8%. By quarter, we had a particularly strong Q1, helped significantly by much fuller brand availability year-on-year, especially in North America, but a softer Q2 driven also by North America, with June the slowest month. July was better, helped by strong ‘back to school’ trading in North America, and this more positive trading has continued since the period end.
We ended the period with 3,347 retail stores, 43 less than at the start of the period because of the strategic divestment of 66 non-core premium fashion fascias.
The Group gross profit margin was 48.0%, 50 basis points (‘bps’) lower than the same period last year, driven mainly by the more normalised promotional environment due to restored product availability. The reclassification of delivery income boosted gross profit margin by 30 bps.
Operating costs before adjusted items1 were 10% ahead of the first half last year as we accelerated our investment in people, systems, infrastructure and new store rollouts. This was the first full period where we saw the financial impact of the investment in our retail colleague base in the UK but we are already seeing the benefits of this investment through more productive teams and lower colleague turnover in our stores. Further, there continue to be upfront costs associated with the various operational investments such as store acquisitions and new distribution centres (‘DCs’) ahead of generating the benefits from higher sales and a more efficient supply chain. The reclassification of delivery income reduced operating cost as % of revenue by 30bps in the period. As a result of these impacts, operating profit before adjusted items1 was down 5% to £398.4m.
Group profit before tax and adjusted items1 was £373.5m, in line with expectations and reflecting the move back to a more normal first half contribution of around 35%.
Our net cash1 position improved 26% from 12 months ago to reach £1,276.5m. Capital expenditure was £209.1m, up £52.5m on the first half last year, as we started stepping up our store opening programme and continued to invest in strengthening our operational efficiency.
Reflecting the Group’s first half performance, our continued strong cash generation and the Board’s confidence in our long-term growth strategy and prospects within the Sports Fashion market, the Board is proposing an increase in the interim dividend from 0.13p per ordinary share to 0.30p per ordinary share. This returns the interim dividend to its pre-pandemic cover levels. This will be paid on 5 January 2024 to all shareholders on the register at 8 December 2023.
Governance
As part of the investment in strengthening our infrastructure, we are on track to complete the governance transformation programme in line with the plan we set out in June 2022. Highlights from the programme over the last six months include: Ian Dyson, Angela Luger and Darren Shapland joining the Board as independent non-executives; determining a clear path to setting up a Board ESG committee, which will be led by Angela Luger; and attaining overwhelming shareholder support for our updated Remuneration Policy. Going forward, we will continue to act in line with best practice while preparing for potential upcoming changes to the Corporate Governance Code.
M&A update
Our M&A strategy is currently a combination of business simplification, through both acquiring non-controlling interests and divesting of non-core businesses, and facilitating the future growth of both the JD brand and complementary concepts.
· Groupe Courir (‘Courir’)
Following approval from the Courir employee works council, we entered into a Share Purchase Agreement in June 2023 to acquire Courir, which has over 300 Courir-bannered stores across six European countries. This acquisition remains subject to competition authority approval and we are currently in the ‘pre-notification’ phase. We still anticipate closing this acquisition prior to our full year results announcement in 2024.
· Iberian Sports Retail Group (‘ISRG’)
We were served with a buy/sell notice by the non-controlling interest in April 2023 to either acquire the other 49.98% stake in ISRG or sell our 50.02% interest. We chose to acquire the minority stake to accelerate the development of the JD brand in Iberia. We will shortly publish the shareholder circular seeking approval for this transaction. The General Meeting of Shareholders will be held on 9 October 2023 and we expect to complete the acquisition in October.
· Marketing Investment Group (‘MIG’)
We exercised an option to acquire the minority 40% stake on 8 August 2023 with the plan to accelerate the growth of the JD brand in Eastern and Central Europe, including entering two new countries in the region. This transaction is subject to customary competition authority approval. We aim to complete this acquisition later this calendar year.
· Malaysia
After the period-end date, we concluded an acquisition of the non-controlling interest in our Malaysian, Thai and Singaporean business. Once more, this will help us to deliver further on our JD First strategy which is at the heart of our five-year growth plan.
Sports Fashion
Our Sports Fashion business achieved revenue of £4,511.9m in the period, up 9% on the corresponding period last year, or 7% in constant currency1. The gross profit margin was 48.4%, 60bps down on last year, due mainly to operating in a more normalised promotional environment because of much better product availability, especially in North America. Before adjusted items1, operating profit was £398.6m, 3% lower than last year as we continued to invest in our operational infrastructure.
Premium
Premium Sports Fashion revenue, which represents 80% of our Sports Fashion segment by revenue, was up 17% to £3,594.2m, or 16% in constant currency1. Organic sales growth1 was 15%. Operating profit was £335.5m, down 5% on the corresponding period last year, due primarily to operational infrastructure investment.
UK and Republic of Ireland
This was another good performance from our longest-standing region. With our premium Sports Fashion retail fascias growing revenue by 8% to £1,202.5m and organic sales growth1 of 8%.
Operating profit in premium Sports Fashion was down 12% to £141.9m as head office elements of our investment in future growth, such as dual-running of DCs, acquisition costs and certain systems developments, are attributed to this region.
In terms of store numbers, we ended the period at 448 premium Sports Fashion stores, up four since the start of the period. The UK remains an opportunity for selective growth – new stores in the period included Derby, which was our 400th JD store in the UK and our 100th on a retail park, and upsizes to come include premium malls such as the Trafford Centre in Manchester and Stratford in London.
Europe
Premium Sports Fashion revenue grew 32% to £773.8m, or 28% in constant currency1, with organic sales growth1 of 27% and LFL sales growth of 15%. Footfall was very strong in Q1 helped by better year-on-year product availability. All major European countries saw strong organic sales growth1 with Italy, Holland and Spain leading the way. The conversion of 19 Conbipel stores in Italy to the JD brand helped to drive the strong sales growth in the period. These conversions are trading well and ahead of expectations, and helped Italy to be the fastest growing market for the JD brand in Europe.
In line with our expectations, operating profit was £25.0m, down 36% on the first half last year. While gross profit margins were down year-on-year due primarily to the more normal promotional environment, increased operating costs were the main reason for the reduction in profit: we paid rent and staff costs on the nine acquired GAP stores in France, which will commence trading over the course of H2; we were fully costed on the Conbipel stores in Italy but with only a small proportion of the full expected returns being generated in the period; and we have been taking on additional supply chain costs related to the new Heerlen DC as we ramp up towards full opening.
We ended the period with 474 premium Sports Fashion stores, up 39 on the period end. We opened 41 new premium Sports Fashion stores across 12 different countries with Italy contributing around half of these new stores.
North America
Our North American businesses continue to trade well. Our market-leading proposition and continued outperformance is built upon larger and better-invested stores, a broader sales mix and compelling brand partner relationships.
Premium Sports Fashion revenue was up 18% in the first half to £1,387.0m with constant currency1 growth of 15%. Organic sales growth1 was also 15%. All our North American businesses achieved good organic sales growth1 with the three largest – Finish Line/JD, DTLR and Shoe Palace – delivering between 13% and 17% organic sales growth1. Q1 trading was stronger than Q2 in North America – in Q1 we benefitted significantly from better stock availability, while in Q2 organic sales growth1 was much softer. Within Q2, June was slow which can be attributed partly to a lower level of new product releases than in previous periods. Sales growth improved in July and since then, organic sales growth1 has continued to improve, helped by a strong ‘back to school’ season.
Premium Sports Fashion gross margins were down on last year due mainly to a more normalised promotional environment but operating profit grew 12% to £136.2m.
There were 969 premium stores in North America at the period end, up a net 14 versus the start of the period. 24 new stores were opened of which 16 were conversions from Finish Line to JD. Including Canada, we now have 168 JD stores in North America, as we continue to grow the JD brand presence in the region. There were a net three new Shoe Palace openings in the period including at Pearland and Brazos in Texas, as this business extends its presence in the Southern border states.
Asia Pacific
Premium Sports Fashion revenue in Asia Pacific grew strongly by 22% in the period to £230.9m, and 26% on a constant currency1 basis. Organic sales growth1 was also 26% with all countries in growth including Australia, our principal market in the region.
Operating profit was up 4% to £32.4m as the closure of our South Korea business progressed as planned. Going forward, our Sydney distribution centre (DC) will relocate in 2024 to a new, expanded site to ensure we have sufficient capacity for the next stage of growth.
We ended the period with 84 stores, four less than the start of the period. We opened four stores in the period, and in August 2023 we have subsequently opened a new flagship store on Pitt Street in Sydney which is Australia’s prime retail destination. This store achieved our best-ever opening day for a new store globally.
Other Sports Fashion Fascias
Due solely to the UK divestments of non-core fashion businesses, revenue in our other Sports Fashion fascias was £783.8m, down 16% or 18% in constant currency1. Organic sales growth1 was 6% and all regions achieved organic sales growth1. Europe, which now represents 76% of our other Sports Fashion fascias, performed particularly well with organic sales growth* of 9% led by Cosmos in Greece and Sport Zone in Portugal. Operating profit was broadly in line with the corresponding period last year at £43.7m.
We ended the period with 1,125 stores, down 92 on the period start. 66 of these were from the non-core fashion business divestments in the UK.
Sports Fashion – Gyms
In the period, we continued to roll-out the JD Gyms fascia, expanding our market-leading, premium low-cost gyms business across the UK but particularly in the South of England. After opening two new gyms in the period, the Group operated from 80 sites in the UK. We plan to increase the pace of our organic rollout going forward and have a strong pipeline of new sites. We expect to open a further six locations in the current financial period.
Outdoor
We achieved revenue of £272.0m in the first half of this financial period, which was 1% down on the corresponding period last year having reduced the total number of stores by four to 247 by the period end. We made a small operating loss in the half of £0.2m due primarily to the impact from slower camping sales. We saw an uptick in performance in July and August when the UK weather became more unsettled.
Our new Go Outdoors stores are performing above our expectations including new flagship stores in Derby and Swindon. We also refreshed a further seven GO Outdoors large-format stores during the period, including in Bristol and Milton Keynes.
We acquired the remaining shares in Tiso Group Limited from the founding family, making the business 100% Group owned, while to enhance our customer service and efficiency further, we opened a dedicated B2C e-commerce fulfilment centre at Trafford Park, enabling the existing large DC in Cheshire to focus solely on store replenishment.
Strategy update
We launched our new strategy at our Capital Markets Day in February 2023. We are making strong progress on all key elements of the strategy and we are on track to deliver year one’s targets across our four strategic pillars. Going forward, strategic delivery will help to drive double-digit revenue growth, double-digit market shares in our major markets and a double-digit operating profit margin
JD Brand First
The JD brand is our priority and the acceleration of our JD store opening programme has begun. In total, we added 83 new JD stores in the period, of which 17 were conversions. With our strong pipeline of new stores in place, supported by an expanded team in all regions, we are on track to deliver over 200 new stores this year.
As we accelerate our store opening programme, we will maintain our demanding performance targets for new stores. Sales uplifts from conversions, globally, are 20% while payback on our new JD stores continues to be within three years.
There is good momentum in North America where we converted 16 Finish Line stores and opened 14 new JD stores across the US and Canada. New locations for the JD brand included the Aventura mall near Miami, the third largest in the US, and the Mall at Prince George’s, in Washington DC. We expect to convert a further 15 to 20 Finish Line stores to JD in H2.
In Europe, we opened a net 39 new JD stores, including some of the 19 of the 21 stores we acquired from Conbipel in Italy. We have now re-opened all the Conbipel stores and they are trading ahead of expectations. We opened our first stores in Slovakia and Cyprus, taking to 30 the number of countries with a JD fascia, while we are on track to open our new flagship store on the Champs Elysees ahead of the 2024 Paris Olympics.
The minority acquisitions in Iberia via ISRG and Central/Eastern Europe via MIG, strengthen our foothold in these geographies and will accelerate our European expansion through an enhanced focus on new JD store openings and conversions.
In UK/ROI, the main strategic focus is improving locations or store size in existing cities and towns. We opened a net four JD stores, upsized our Birmingham Airport store and have begun the expansion of our flagship store at Stratford in London, which will reopen in Q1 of FY25.
In Asia Pacific, we opened four new JD stores but closed eight following our withdrawal from South Korea. We finalised the acquisition of our non-controlling interests across Malaysia, Thailand and Singapore after the period end, which will help us to accelerate the growth of the JD brand in these markets.
In addition to ‘own store’ growth, we signed our first JD franchise agreement in July in the Middle East with Gulf Marketing Group (‘GMG’). This agreement has an initial target of 50 franchised JD stores by 2028 across UAE, Saudi Arabia and Egypt. We expect our JD franchise model to gain real traction going forward. We are working on other exciting opportunities to build a larger JD franchise footprint in regions such as Africa and South East Asia.
Importance of Complementary Concepts
We continue to leverage our complementary brands at the top of our brand pyramid, such as Size? and Footpatrol providing an environment for seeding new product ideas, launching exclusive ranges and introducing new brands to the Group. In the US, both DTLR and Shoe Palace, which cater primarily to a different demographic to JD/Finish Line, continued to perform well in the period.
The acquisition of Courir continues to progress and we expect completion in either Q4 2023 or Q1 2024. Courir will add a new dimension to our brand portfolio with its stronger female product range and customer base and this will provide material learnings to the JD brand and other brands within the Group.
JD Beyond Physical Retail
Towards the end of the period, we launched our loyalty programme pilot scheme, JD Status, across ten stores around Manchester. It is very early days in the scheme but initial results are encouraging with a very positive reaction from our customers and brand partners. Assuming continued success, the next stage would be a programme rollout across the UK.
We continue to invest in other areas of our omnichannel strategy to develop our capability. An end-to-end cyber improvement programme was initiated in the period to strengthen security architecture and we have an ambitious development roadmap in place to enhance this further. We also commenced the initial scoping for a new global e-commerce platform.
In addition, to keep ahead of our footprint growth, we continue to make improvements and investments in our supply chain. All major projects are progressing at pace. Our new European DC at Heerlen, in The Netherlands, will start receiving stock by December 2023 ahead of starting to ship to stores from early 2024 as planned. The fit out of the latest technology and automation solutions is underway, enabling it to serve as the logistics hub for all JD operations across Continental Europe. Our new UK B2C facility in Derby is moving towards optimum capacity and is on track to fulfil most UK online orders ahead of our peak trading period in Q4 2023. The planned exit from the temporary third-party logistics DC in Leeds was completed as planned earlier this year.
People, Partners & Communities
Our people are at the heart of our business. We have invested an annual £45m in our retail colleagues’ base salaries to ensure we recruit and retain the best talent and, following this investment, we have seen a significant reduction in colleague turnover. We are also investing in a new global HRIS project which will ensure a much more seamless HR experience for our people.
Our new global leadership team is almost fully embedded now and driving the JD First strategy across the business. In October, Dominic Platt will join as the Group’s new Chief Financial Officer and Adam Warne will join as the new Chief Technology Officer, taking full responsibility for our systems across the globe.
Our partner relationships are as strong as ever. We are Nike’s key global partner, while we are Adidas’s biggest global partner for the ‘terrace’ category, within which we’ve seen a great performance from Gazelle and Samba. Alongside the larger brands, through our scale and global reach, we are well placed to support the global development of fast-growing brands and in H1 we saw particularly strong growth from New Balance and On Running.
Our commitment to our community is showcased through our ongoing partnership with the JD Foundation and various community support programmes across the regions, such as the Shoe Palace ‘Believe to Achieve’ programme. The JD Foundation strategy is evolving to focus on building stronger youth communities and transforming young people’s lives through opportunities, engagement and social change.
Régis Schultz
Chief Executive Officer, JD Sports Fashion
21 September 2023
