Sports Direct reports 59 percent drop in annual profit

Sports Direct Group revenue for the year ending April 30, 2017 increased by 11.7 percent to 3,245.3million pounds (4,227 million dollars). Group underlying profit before tax decreased 58.7 percent to 113.7million pounds (148 million dollars), due to lower EBITDA and higher depreciation charges. Underlying EPS for the year decreased by 67.9 percent to 11.4p compared to 35.5p reported last year.

Commenting on the company’s preliminary results, Mike Ashley, Sports Direct’s Chief Executive, said in a statement: "As previously announced, the devaluation of Sterling against the US dollar has led to a significant impact on EBITDA and profits in FY17. Our results were also impacted by provisions and depreciation charges.”

Sports Direct Group EBITDA declines 28.5 percent

As expected, the company said, gross margin in the year decreased by 320 basis points from 44.2 percent to 41 percent due to the impact of the negative movement in the US dollar exchange rate against the pound and to an increase in provisioning for stock obsolescence. UK sports retail margin decreased by 330 basis points from 44.5 percent to 41.2 percent, while international sports retail decreased 160 basis points from 44.8 percent to 43.2 percent. Premium Lifestyle's gross margin decreased by 450 basis points from 42.1 percent to 37.6 percent, which the company said was also due to discounting of slow moving stock.

Sports Direct added that the group operating costs increased by 16.9 percent to 1,058.7million pounds (1,378 million dollars), as a result of the impact of increased onerous lease provisions cross Europe stemming from a review of poorly performing stores where the US dollar exchange rate has reduced margins. As a result, group-underlying EBITDA for the year was down 28.5 percent to 272.7million pounds (355 million dollars). UK sports retail underlying EBITDA was down 26.3 percent to 265.7million pounds, while international sports retail EBITDA loss increased to 19.1million pounds (24.8 million dollars) from 4.9million pounds (6.3 million dollars). Premium Lifestyle EBITDA was a 0.3million pounds (0.39 million dollars) loss from an EBITDA loss last year of 5.1million pounds (6.6 million dollars) and brands division underlying EBITDA decreased to 26.4million pounds (34.3 million dollars).

Revenues in the UK and international sports retail increase

The UK sports retail segment includes all of the group's sports retail store operations in the UK and Northern Ireland, all of the group's sports online business, fitness division, and Shirebrook campus operations. The segment accounts for 65.8 percent of group revenue. Revenues of the segment grew 6.3 percent to 2,136.4million pounds (2,782 million dollars), which include the full year of Heatons Northern Ireland stores. Excluding the impact of Heatons NI, UK sports retail revenue growth was 4.4 percent and excluding the 53rd week, the segment’s revenue growth was 4.5 percent. Excluding both Heatons NI and the 53rd week, revenue growth was 2.6 percent.

The company expects foreign currency effect on margin for FY18 is to stabilise based on all forecast purchases for FY18 being hedged at 1.31. UK sports retail like-for-like gross contribution, increased by 0.3 percent compared to the prior year. During the year, the company opened 15 new stores and closed 20.

International sports retail segment includes all of the group's sports retail store management and operations outside of the UK, including the group's retail distribution centres in Belgium and Austria. Revenue grew 38 percent to 665.6million pounds (866 million dollars), including the full year of Heatons Republic of Ireland stores. Excluding the impact of Heatons, international sports retail revenue growth was 7.4percent on a currency neutral basis.

International sports retail like-for-like gross contribution, decreased by 0.8 percent compared to the prior year. During the period the group impaired the brands acquired in the Heatons subsidiary, due to the on-going programme of re-branding to Sportsdirect.com. During the year, Sports Direct opened 21 new stores and closed 17.

The group's premium lifestyle division that offers a broad range of clothing, footwear and accessories from leading global, contemporary and luxury retail brands increased sales by 11.6 percent to 202.2million pounds (263 million dollars), mostly due to increased web sales. The brands portfolio that includes a wide variety of world-famous sport and lifestyle brands increased revenue by 4.1 percent to 241.1million pounds (313 million dollars). Wholesale revenues increased 2.4 percent to 201.4million pounds (261 million dollars), which the company said were due to growth in European and US wholesaling.

Licensing revenues in the year were up 14.1 percent to 39.7 million pounds (51.6 million dollars). During the year, the company signed 20 new licence agreements and renewed several existing licensees, covering multiple brands, product categories and geographies, with minimum contracted values of 20.1million pounds (26.1 million dollars) over the life of the agreements.

Picture:Sports Direct website