JD Sports reported declines in both sales and profits for the first half, impacted by the coronavirus, although performance at the sporting goods retailer has improved with the reopening of stores in the U.K.
In a Nutshell: Continuing outbreaks of the coronavirus pandemic forced temporary store closures and strict social distancing requirements at company warehouses illustrate the challenges that lie ahead, JD Sports said Tuesday.
“Ultimately, given the unique circumstances of this trading period, we are reassured by the strength of the JD brand as demonstrated by the retention of more than 90% of the total revenues. However, it should be recognized that this has necessitated additional costs principally relating to the provision of enhanced health and safety measures, in all areas of the business, together with increased costs of online fulfillment, including performance marketing,” said Peter Cowgill, JD Sports’ executive chairman.
The company said its Kingsway facility has remained open throughout the period, while a new 80,000-square-foot warehouse in Belgium is now receiving and fulfilling product to some European stores.
“It has been well publicized that we have withheld the payment of some rents across our global retail estate this year. We firmly believe that it cannot be equitable to pay full contractual rents when there is no realistic prospect of any income from a store. It remains our view that rents should reflect the basic economic principles of ‘supply and demand’ with market rents now falling significantly below those currently being demanded by outdated contractual principles,” JD Sports said. “We have tentatively reached agreement with a number of landlords who acknowledge such principles although others are more intransigent in their approach. Ultimately, it is in our mutual interest to reach a fair and equitable compromise.”
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Net Sales: For the first half ended Aug. 1, the retailer of sports, fashion and outdoor brands said revenue fell 6.5 percent to 2.54 billion pounds ($3.31 billion) from 2.72 billion pounds ($3.55 billion).
The company said its omnichannel capabilities allowed consumers to migrate from bricks to clicks.
The initial business in re-opened stores got a boost from a combination of pent-up demand and promotional activity, particularly in apparel, which lacked seasonal relevance, the company said. And while there has been some weakness in footfall, the company said some of that has been offset through better conversion and higher average transaction values because consumers who visited physical stores did so with greater intent to purchase.
As for its development of JD and Finish Line in the U.S., the company said it plans to highlight the JD brand in major metropolitan areas through a combination of opening new stores and converting Finish Line stores where appropriate. Six stores have been converted, and up to 30 more will be converted in the second half. A new JD flagship store in Manhattan’s Times Square is scheduled to open in October.
Earnings: Pre-tax profit for the period was 41.5 million pounds ($54.1 million), a 68.1 percent drop from 129.9 million pounds ($169.4 million) in the same year-ago period. The company attributed the reduction in profitability to the coronavirus, noting the “additional costs associated with this shift in revenues to online channels particularly during period of temporary store closures.”
Cowgill said the company believed it would be “appropriate” for the group to reinstate guidance for the full year. Presuming a “prudent, but realistic set of assumptions” that include an uncertain outlook for consumer confidence and the ongoing challenges of attracting footfall to stores, Cowgill said the company is projecting a headline profit before tax for the full year of at least 265 million pounds”, or $345.5 million, when calculated under accounting standard IFRS 16 Leases.
CEO’s Take: “We are generally encouraged by our performance since the stores re-opened and with our performance in the first few weeks of the second half. However, retail footfall remains comparatively weak and the recent strengthening of measures in many countries and the subsequent temporary closure of some stores reminds us that COVID-19 remains an ongoing challenge. Nonetheless, we remain absolutely confident in our strengths in consumer engagement, key brand relationships and globally consistent multichannel retail standards,” Cowgill said.