12 Sep JD Sports Seeing Modest Improvement At Finish Line
JD Sports reported Finish Line’s comps grew 3 percent in the first half and showed slight improvement in product margins. The sixth JD Sports banner opened in the U.S. with success being found in expanded apparel range. A JD Sports’ Times Square location is scheduled to open in spring 2020.
Companywide, net profits reached £95.4 million against £95.4 million a year ago, a gain of 2.7 percent.
Group revenue increased by 47 percent to £2,721.2 million from £1,846.3 million a year ago. Strong total like for like sales growth was seen in global Sports Fashion fascias of 12 percent including highly encouraging growth of more than 10 percent in the
core* UK and Ireland Sports fascias.
The company delivered another record result for the half year with Group EBITDA on a comparable accounting basis increased by 37 percent to £235.2 million from £171.8 million a year ago. Profit before tax and exceptional items on a comparable accounting basis increased 36 percent to £166.2 million from 121.9 million.
Reported profit before tax increased 6.6 percent to £129.9 million from £121.9 million, after net adjustments of £7.6 million following transition to IFRS 16 ‘Leases’ and exceptional items of £28.7 million
Peter Cowgill, executive chairman, said: “I am very pleased to report that this has been another period of significant progress for the Group with revenue growing by 47 percent to £2,721.2 million (2018: £1,846.3 million) and the headline profit before tax and exceptional items increasing by a further 30 percent to £158.6 million (2018: £121.9 million).
“Against a backdrop of widely reported retail challenges in the UK, it is extremely encouraging that JD has delivered like for like sales growth of more than 10 percent with an improved conversion reflecting consumers’ increasingly positive reaction to our elevated multichannel proposition where a unique and constantly evolving sports and fashion premium brand offer is presented in a vibrant retail theatre with innovative digital technology. JD also continues to gain momentum in Europe with a further double digit increase in total like for like sales and a net increase of 23 stores in the period.
“We are pleased by the continued positive trends to date in the second half in Sports Fashion whilst recognising the tougher comparatives ahead.
“Notwithstanding the ongoing uncertainty with regards to Brexit, the Board is confident that, without the impact from the transition to IFRS 16, 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 range from £402 million to £424 million. However, after adjusting for the impact of the transition to IFRS 16, we would expect to deliver results at the mid-point of expectations. We remain encouraged by our prospects for further growth.”
The JD fascia has also made further significant progress in its international markets with a net increase of 31 stores in
the first half:
• Europe: JD continues to gain momentum with a further double digit increase in total like for like sales and a net
increase of 23 stores in the period with new stores in most of its existing territories together with its first JD store
in Austria. The new stores in the period included the conversion of six former Chausport stores in France in
locations where JD believeS that the JD proposition is more appropriate to the particular local market. The average
size of the new stores opened in the period was 3,900 sqft (2018: 3,200 sqft) with the larger footprint a reflection
of its increased confidence of consumers’ appetite for the full JD proposition in these markets. JD now has a
presence in 11 countries in mainland Europe and JD said it is increasingly confident that JD is developing the same
emotional resonance with consumers in Europe as it is in its core UK and Ireland market. JD said it would expect to
open a similar number of stores across Europe in the second half. JD said it have also now committed on a flagship
store in the centre of Paris on the Rue De Rivoli with fit out commencing in the new year.
• Asia Pacific: There was a net increase of seven stores in the period with additional stores in Malaysia, Australia
and Singapore. The relatively slower pace of openings in the period is purely a timing issue, reflecting the
availability of property, and JD said it would still expect to open more than 15 stores across the region over the full year.
JD said it continues to make learnings in all of its territories which JD plans to use to further refine its integrated digital
proposition and, with the ongoing support of its key brand partners, JD said it remains confident that further
opportunities will prevail to expand the reach of its exciting and dynamic proposition in the region. Subsequent to
the period end JD disposed of the legacy Glue retail business in Australia which was becoming an increasing
distraction. JD said it does not believe that there will be any adverse impact on the development of JD in the country
which is now well established with its own identity and operational infrastructure.
• United States: JD said it now has opened its sixth JD store in the United States after the conversion of the former
Finish Line store in the Mall of America at Bloomington, Minnesota. These JD stores now have digital support
following the launch of a trading website in May. These initial stores were deliberately chosen as JD said it believed they
would give us the greatest width of intelligence both geographically and demographically thereby helping us to
shape its future strategy. JD said it may convert an additional small number of Finish Line stores to JD in the second
half to expand its market knowledge further although this will depend on receiving the necessary local planning
consents in time to enable the conversions to be open ahead of the key holiday period. JD said it anticipates further
significant developments for JD in 2020 as JD begin to open stores organically in the major metropolitan areas
with work starting recently on the fit out of a flagship store in Times Square, New York which is currently
scheduled to open in Spring 2020. JD said it remains encouraged by the early performance of the apparel ranges which
are now becoming increasingly representative of the JD offer.
Away from JD, there are positive developments to report in its other Sports Fashion businesses:
• Premium brand fashion (UK): JD said it recognizes the important role of its premium brand fashion businesses in
elevating its offer to consumers and JD continues to invest in both the stores and multichannel infrastructure to
further enhance the consumer and brand experience. JD said it has also completed a number of small selective
complementary acquisitions in this area in the period to expand its geographical presence and provide us with
additional brand authority. These include the acquisition of the intellectual property and trading assets relating to
the highly regarded Pretty Green brand from its administrator for a total consideration of £1.5 million. This
business is now more appropriately scaled with one flagship store in Manchester and a trading website
complementing its wholesale operations.
• Gyms (UK): JD’s Gyms business continues to increase in critical mass with a membership of approximately
120,000 members across 25 gyms. Works are ongoing at a further four sites with openings scheduled later in the
• Sprinter & Sport Zone (Iberia): The process to integrate the Sport Zone businesses in Portugal and the Canary
Islands into the Sprinter infrastructure is nearing completion. It remains its intention to retain the Sport Zone
banner in Portugal although, as with Spain, JD said it is transferring the stores in the Canary Islands to the Sprinter
name with this process expected to be complete before the end of the year. JD said it firmly believe that the rapid
integration of Sport Zone into the Sprinter infrastructure has left the Sport Zone business well positioned for future
• Finish Line (United States): JD said it continues to believe that there is an opportunity to deliver a sustained
improvement in the performance of the Finish Line business over the longer term with a focus on four key pillars:
1. Improving sales densities: JD said it has now commenced a trial which is focussed on driving additional sales of
apparel in stores through extended ranges. This project, which requires a modest capital investment in
stores, is supported by the secondment of a number of key commercial personnel from the core JD business.
JD said it is encouraged by the initial performance of these new ranges which are now in more than 20 stores.
2. Improving product margins: JD said it continues to support the Finish Line management team with a focus on buying
disciplines and the intense management of markdown, leveraging from JD’s strength and experience in these
key commercial areas. JD said it is pleased with the early progress in this area with product margins for the first
half 0.5 percent ahead of the pro-forma equivalent period in the prior year.
3. Exiting underperforming stores: JD said it has exited a further 10 Finish Line stores (excluding Mall of America
which was transferred to JD) and 29 Macy’s concessions in the first half. JD said it would expect a similar number
of Finish Line store closures in the second half.
4. Appropriate scaling of central overheads: JD said it continues to work with the Finish Line management team on
various initiatives including incentive schemes which are self-funded through growth in profitability.
In April JD said it acquired the Footasylum business for cash consideration of £86.0 million with the Group also assuming
net debt of approximately £7.8 million. At acquisition, Footasylum had 69 stores across the UK complemented by a
highly regarded trading website which contributed approximately 30 percent of sales. This was a compelling acquisition for a
number of reasons:
• Footasylum has a complementary product range and customer demographic to the Group’s core JD fascia with
its casual fashion proposition being more fashion-led and appealing to an older consumer.
• Footasylum offers an attractive and creative range of in-house / own label brands which will bring additional
differentiation to the Group’s brand portfolio. JD said it believes that there will be opportunities to exploit these new
brands internationally by leveraging from JD’s extensive international reach.
• Footasylum sells its in-house / own label brands on a wholesale basis and JD said it believes there will be learnings
which JD said it can apply in expanding the wholesale business across the wider Group.
The acquisition of Footasylum is currently under review by the Competition and Markets Authority which has issued
the Group with an enforcement order which obliges us to operate the Footasylum business separately until they have
completed their review. JD said it is complying and assisting fully with this process in order that it can be completed in the
most timely and efficient manner.
This has been another challenging period for its Outdoor businesses overall and, whilst JD said it is pleased with the
positive trading and improved result in the Blacks and Tiso businesses, these gains have been overshadowed by a
significant loss in the larger Go Outdoors business.
The Go Outdoors business has historically worked with a store replenishment model where branded suppliers
delivered goods direct to store. JD said it believes that this model resulted in an inflexible supply chain with weak product
availability in stores at times of high consumer demand and that the stores would therefore be better served, and the
consumer experience enhanced, with a central warehousing model for stock combined with a migration onto the
Group’s IT platforms, leveraging from JD’s highly successful replenishment methodologies. JD said it took possession of a
353,000 sqft facility in Middlewich, Cheshire in February with replenishment commencing from this facility, which is
operated by a third party, at the end of April. Fulfilment of online orders has also now been transferred to this site.
There were a number of initial challenges arising from the execution of this change which had a significant impact on
availability, replenishment to stores and online fulfilment in the key trading period of May and June. JD said it has now
resolved many of the issues and are more widely reassured over the longer term potential for Go Outdoors after the
business delivered like for like sales growth in July.
JD said it maintains its belief that this new flexible supply chain model, where JD has greater control over the
replenishment, will bring longer term financial benefits to Go Outdoors. Furthermore, JD said it remains convinced that
greater integration of the Outdoor businesses, with Blacks and Go Outdoors having access to one pool of stock with
common merchandising systems will also provide the most robust and effective platform for the long term
development of its Outdoor businesses. However, JD said it believes it is prudent to allow time for operations in the new
facility to further stabilise and so JD delayed the transfer of the Blacks stocks from Kingsway to Middlewich until
Kingsway Warehouse Facility
Works to install the additional automation equipment in the 352,000 sqft extension at its primary Kingsway
warehouse have now been completed. Commissioning of the site has now commenced and will be done in phases
through the Autumn with this process expected to be substantially complete ahead of the peak trading period.
The disruption to operations which JD said it experienced in the second half of the prior year has continued throughout the
first half necessitating further frequent changes in operating procedures and additional levels of manual process. JD said it
has now been able to start reducing the level of manual working as JD said it brings the site into operational use although,
as a contingency, JD will retain an element of this additional trained labor through the peak trading period.
Elsewhere, JD has now commissioned a new operational section in Kingsway which will offer a more bespoke
packing and fulfilment service to the trading websites of its premium fashion businesses. Whilst there is some
additional cost associated with this, JD said it believes that it is justified as it further elevates the experience to its premium
fashion consumers and brand partners.
Sports Fashion has had another exceptional first half with profit before tax and exceptional items increasing by a
further 43 percent to £182.4 million (2018: £127.7 million). On a consistent accounting basis, the pro-forma headline profit
before tax and exceptional items to 3 August 2019 under IAS 17 ‘Leases’ would have been £188.1 million being £5.7
million higher than that reported under IFRS 16 ‘Leases’.
JD said it is delighted with trading in the first half with like for like store sales across its global Sports Fashion fascias
(excluding Finish Line) increasing by 9 percent and total like for like sales, including online, growing by 12 percent. All regions for
the JD fascia delivered significant like for like growth although JD said it is particularly encouraged by the extremely robust
performance in its core UK and Ireland market where total like for like sales (including online) grew by more than
10 percent. This was an excellent performance given the growth over the previous five years.
Elsewhere, JD continues to develop positively in its established European markets with increased investment in
marketing helping to drive a further significant double digit increase in total like for like sales. Further afield, 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 in Malaysia in
the early part of the period. JD said it also continues to address some challenges on its operational execution in South
Korea with its joint venture partners and, whilst these have had an adverse impact on the short term performance in
this particular territory, JD said it believes that the learnings will be useful when JD considers opportunities to expand
the JD fascia into other geographies in the Asia Pacific region.
The combined Finish Line and JD business in the United States contributed £35.7 million (£34.7 million on a pro-forma
basis under IAS 17 ‘Leases’) in its first full half year as part of the Group (2018: £4.8 million for the seven week period
post acquisition). On a pro-forma basis, compared to the same 26 week period in the prior year, total like for like sales
for the Finish Line own stores grew by 3 percent which was complemented by a further pleasing double digit growth online
as the business continues to exploit its clear strength in this area. JD said it is also satisfied with the progression on gross
margin for the period to 42.9 percent (pro-forma 26 weeks to 3 August 2018: 42.4 percent) as JD starts to see the benefits of the
work to bring enhanced rigour to the buying and merchandising disciplines. Overall, JD said it remains pleased with its
acquisition of this business and are confident that the business, which remains under the joint leadership of the Finish
Line CFO and JD’s Global Retail Director, has a clear strategy and is well positioned for profitable development.
As anticipated, its overall results in Iberia have been impacted by a further loss in the Sport Zone business of £4.1
million (£3.9 million on a pro-forma basis under IAS 17 ‘Leases’) (2018: £9.5 million) as JD continued with the process
to clear excess legacy stocks aggressively ahead of the transfer of operations to Sprinter’s facility in Alicante.
The overall gross margin in Sports Fashion reduced to 47.4 percent (2018: 48.9 percent) largely from the inclusion of the lower
margin Finish Line business for the full period. Whilst a high proportion of exclusivity and newness in the offer of the
core JD fascia clearly helps to maintain margins, JD fully recognized that the inventory must still be turned regularly.
JD said it will continue to drive this by managing the sell-throughs of ranges intensely with promotional activity that is
selective, specific and relevant fully utilizing the reach provided by its international store estate and portfolio of
JD’s Outdoor businesses have had mixed trading in the first half of the year.
Extremes of weather continue to provide both opportunities and challenges to trading whether they be in the current
period or when measured relative to the prior year. In this regard, JD anticipated a challenging first quarter with tough
comparatives following its exploitation of the favorable trading conditions offered by a more severe winter in the
previous year. Ultimately, JD exited the first quarter with a composite total like for like sales decline across stores and
online of 6 percent (2018: Q1 total LFL growth +7 percent).
Trading in the Blacks and Tiso businesses then improved significantly through the second quarter. These businesses
operate out of smaller space than Go Outdoors with less reliance on camping to drive footfall and sales in the summer
season. Consequently, the cooler and somewhat wetter summer through the UK provided more opportunities for
positive trading compared to the hot and dry weather of the prior year with both of these businesses ending the half
year period with a total like for like sales growth across stores and online of 3 percent.
Go Outdoors had a challenging start to the second quarter with a significant double-digit decline in total like for like
sales in May consequent to the integration issues associated with the transition of fulfillment to the new warehouse at
Middlewich. JD said it is confident that the Go Outdoors business has retained the loyalty of its customers through these
short term difficulties and that the business still provides people with the proposition and inspiration to make the most
of their time outdoors. JD said it is encouraged with the positive performance in July.
On a consistent accounting basis, there was a pro-forma EBITDA loss of £11.5 million (2018: profit of £2.9 million).
However, within this, JD said it is pleased that the smaller Blacks and Tiso businesses have both delivered small
improvements in their first-half EBITDA.
The overall loss before tax and exceptional items increased to £20.1 million (2018: £3.8 million). On a consistent
accounting basis, the pro-forma headline loss before tax and exceptional items to 3 August 2019 under IAS 17
‘Leases’ would have been £18.2 million.
In the period, JD said it recognized an exceptional charge of £20.7 million (2018: £nil) in relation to a partial impairment of
the goodwill arising in previous years on the acquisition of the Go Outdoors business. JD said it also recognized a charge of
£4.4 million (2018: £nil) for costs arising on the integration and consolidation of the principal IT systems, warehousing
and other infrastructure in Go Outdoors.