Sports Direct reports 72.5 percent drop in annual profit

Sports Direct International Plc’s revenue for the year ended April 29, 2018, increased by 3.5 percent to 3,359.5 million pounds (4,387 million dollars). Reported profit before tax was 77.5 million pounds (101 million dollars), down 72.5 percent, which the company said was largely due to an 85.4 million pounds (111.4 million dollars) impact from its Debenhams strategic investment. Reported earnings per share fell by 88.3 percent to 4.6p, while underlying basic earnings per share increased by 74.6 percent to 19.9p.

Commenting on the group’s performance, Mike Ashley, the company’s Chief Executive, said in a statement: "I'm pleased that our Underlying EBITDA has come in at the top end of our expected range at 306.1million pounds as we indicated this time last year, and also that the underlying profit after tax has increased substantially to 104.9million pounds."

Review of Sports Direct’s annual performance

The company said while UK sports retail decreased by 2 percent to 2,181.5 million pounds (2,847.9 million dollars), which includes USC fascia sales, European Sports Retail decreased by 0.1 percent to 637.2 million pounds (831.8 million dollars) including Heatons Republic of Ireland. The company’s premium lifestyle segment’s revenue increased by 42.7 percent, with revenue in wholesale & licensing division down 22.7 percent and rest of world retail revenue reaching 192.4 million pounds (251.2 million dollars).

Group gross margin in the year decreased by 130 basis points from 41 percent to 39.7 percent, which the company said, was largely due to acquisition accounting as a result of the purchase of the trade and assets of Bob's Stores and Eastern Mountain Sports, and increased inventory provisions as all divisions invested in more significant product offerings. UK sports retail margin was down at 40.8 percent compared to 41.1 percent in 2017, while European sports retail decreased 250 basis points from 43.3 percent to 40.8 percent. Premium Lifestyle's gross margin decreased by 190 basis points to 33.3 percent and rest of world retail margin was 30 percent.

Group underlying EBITDA for the year was up 12.2 percent to 306.1 million pounds (399.6 million dollars). UK sports retail underlying EBITDA was up 6.5 percent to 277.9 million pounds (362.7 million dollars) while European sports retail underlying EBITDA was a profit of 14 million pounds (18.2 million dollars) from a prior year loss of 22 million pounds (28.7 million dollars). Premium lifestyle underlying EBITDA was up 43.2 percent to 6.3 million pounds (8.2 million dollars), rest of world retail was a loss of 22.3 million pounds (29 million dollars) and wholesale & licensing underlying EBITDA increased to 30.2 million pounds (39.4 million dollars).

Group underlying profit before tax increased 34.5 percent to 152.9 million pounds (199.5 million dollars), which Sports Directs attributed to the higher EBITDA, favourable realised FX and lower depreciation and amortisation charges. Underlying basic EPS for the year increased by 74.6 percent to 19.9p.

Sports Direct expands retail presence

During FY18, the company opened a total of 15 of new generation stores, of which five were regional flagship-style stores, consisting of multiple fascias on a single site. Post year-end, the company has opened Thurrock, bringing the total number of flagships to 19. The Group is currently operating 374 stores in England, 36 in Scotland, 29 in Wales and 16 in Northern Ireland, along with 38 other fascia including USC. This represents a net reduction of 19 stores over the period as a result of 13 openings and 32 closures. Of the 32 closures, 8 were linked to relocations to new generation stores.

In Northern Ireland, during FY18 the 10 Heatons/Sports Direct dual-fascia stores acquired at the time of the Heatons acquisition have been converted to the Sports Direct new generation store format. The remaining six standalone Sports Direct stores are part of a pipeline for future development and investment. The Group forecasts that there will be 10-20 new generation Sports stores over the coming financial year in the UK and ROI, the majority of which will include the new USC concept. For luxury fascia, Flannels, the company anticipates 6-12 new stores over the coming financial year.

The ongoing investment programme by the Group in Ireland has also seen the development of two new generation Sports Direct stores during FY18, one being the flagship in Dublin. The Group has also invested extensively in the Heatons ROI existing store network through the conversion of 16 out of the 29 dual-fascia Heatons / Sports Direct stores. The Group operates in 32 locations across ROI, five of which are standalone Sports Direct stores. An additional 12 stores are standalone Heatons fascia.

The Group forecasts that there will be in the region of three - five new generation Sports stores over the coming financial year in ROI, the majority of which will include the new USC concept.

The Group continues to operate sports stores in 18 countries in Europe. There were 221 Sports retail stores in Europe, a reduction of 12 from the previous financial year. There were five openings in four different countries in FY18, one of which was a relocation and there were 17 closures in seven different countries of non performing stores. In the rest of the world, there were 30 stores in Malaysia, including five openings in the year and 49 stores in the USA, with the acquisition of Bob's Stores / Eastern Mountain Sports completed.

The Group also operates 21 Flannels stores, 10 Cruise stores and three van mildert stores - a total of 34 stores within the luxury division.

Picture:Sports Direct media gallery