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JD Sports Touts Profitable Outlook Despite Covid, Brexit Turmoil

While unprecedented challenges tested JD Sports Fashion PLC’s business last year, the retail group cited a profitable outlook forecasted for the new fiscal year.

In a Nutshell: The fashion, sports and outdoor retailer said even with temporary store closures from the Covid pandemic and the Brexit impact, it was able to retain most of its profitability from the prior year before taxes and one-time charges. That figure for the year ended Jan. 30, 2021 was 421.3 million pounds ($578.5 million), versus 438.8 million pounds ($602.5 million) for the year ended Feb. 1, 2020.

Peter Cowgill, JD’s executive chairman, said the company kept its warehouses in operation during the pandemic by adopting new operating procedures and investing in needed modifications to ensure the safety of colleagues. The company expects that sales from online channels will remain at an elevated level, and has determined that it needs additional warehouse capability in the U.K. It has inked a letter of intent with Clipper Logistics Plc for a range of logistics operations, including warehousing and e-fulfillment, which are expected to begin later this year. The current warehouse at Kingsway will focus on supply of product to stores, which better matches the equipment that’s at the site.

Also because of Brexit and customs checks on the transfer of goods from the U.K. into European Union  countries, JD Sports is planning to reduce certain operational and tax consequences by opening an 80,000 square foot warehouse in Belgium in August 2021, which would fulfill a large portion of its core offerings for stores in Mainland Europe. JD Sports is also fitting out a 65,000 square foot warehouse near Dublin, which is expected to become operational in the second half of this year, for online orders and product for operations in the Republic of Ireland.

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The company said that it is reviewing options for a larger permanent facility in Europe to handle the bulk of volume required for stores and online orders in Mainland Europe, but said an enlarged facility probably won’t be available for use until Autumn of 2022.

JD’s outlook for the new fiscal year ending Jan. 29, 2022 is also helped by its $495 million acquisition of American retailer DTLR in February, the $325 million purchase of American footwear retailer Shoe Palace and the planned purchase of a 60 percent stake in Marketing Investment Group S.A., for an undisclosed amount, which was noted last month. MIG operates over 100 streetwear-focused Sizeer stores across parts of Europe and the deal is expected to close before the end of May 2021.

“Our recent completed acquisitions of Shoe Palace and DTLR in the United States together with the conditional acquisition of Sizeer in Central and Eastern Europe are important steps in our evolution which will transform our consumer connection in these markets and further develop our key brand relationships,” Cowgill said.

During the year, the company also acquired Onepointfive Ventures Ltd. in Canada, comprising four stores doing business as Livestock and a website operating under the name Deadstock. The transaction gives JD Sports a platform to develop the Canadian market. The first Sizeer store is expect to open later this spring. JD Sports also purchased out of administration 50 gyms from Xercise4Less out of administration, the U.K. equivalent of a U.S. bankruptcy, for 24.2 million pounds ($33.2 million). It returned 11 sites back to landlords and plans on keeping at least 36 of the remaining gyms. Lease negotiations are ongoing for a small number of sites, and the plan is to convert the gyms to the JD nameplate. A total of 19 have already been converted to the JD format during the most recent temporary store closure period.

As for full year results, Cowgill said: “The global COVID-19 pandemic and, more recently, the U.K.’s formal exit from the European Union have presented a series of unprecedented challenges which have severely tested all aspects of our business including our multichannel capabilities, the robustness of our operational infrastructure and the resilience of our colleagues. However, at all times, the Group has strived to do the right thing for all stakeholders.”

In his detailed statement to investors regarding the year’s results, Cowgill highlighted a number competitive advantages, from a deep consumer connection to a multichannel approach and a growing international momentum that has transformed both the awareness of the Group and its reputation with potential partners.

Cowgill also said after withholding rent payments for some stores during the temporary store closure period due to Covid, the company has reached an agreement with most of its landlords, although there are still a small number who, to date, “have not been prepared to share any of the financial burden during this challenging time when our stores have not been trading.”

Among the environmental, social and governance initiatives, Cowgill said last year the company achieved an “A-” rating for its 2020 Carbon Disclosure Project (CDP) Climate Change Assessment, a “B” rating for its first submission to the CDP’s Water Security” category and recognition as a “committed” supporter by the Science Based Targets Initiative board in December 2020. The chairman said the group has also reduced its use of virgin polyester in its private label manufacturing, while increasing the use of responsibly sourced cotton.

Net Sales: The retailer said revenue for the year increased 1 percent to 6.17 billion pounds ($8.47 billion) from 6.11 billion pounds ($8.39 billion) a year ago.

Despite the temporary store closures, Cowgill said the company was able to retain about 70 percent of store and online revenues versus the prior year during the initial closure period last spring, and the retention rate was 100 percent through November when stores were closed again.

The company said that apparel sales, mostly casualwear and sportswear, performed “strongly” in the year. Sales of apparel ranges represented more than 50 percent of revenues in the U.K. “Whilst we must obviously acknowledge the increased levels of working and exercising at home, it is our belief that the growth in casualwear and sportswear is not a temporary phenomenon with the culture of casual attire in working and social environments gathering momentum over a number of years,” Cowgill said.

JD Sports’ Mainline Menswear, a premium fashion brand that operates exclusively online, was cited as having a “very strong year” as new customers sought a quality digital and customer service experience. Other online businesses also saw gains during the temporary store closure periods.

Earnings: Profit for the period before tax fell 7 percent to 324.0 million pounds ($457.9 million), or 32.19 pence a diluted share (44 cents), from 348.5 million pounds ($492.6 million), or 34.26 pence (47 cents), last year.

Cowgill said that the company is “well placed to benefit from the opportunities that prevail,” and at this early stage, the company is projecting a profit before tax for the full year ending Jan. 29, 2022 to be in the range of 475 million pounds ($652.2 million) to 500 million pounds ($686.6 million).

Chairman’s Take: Despite the challenges from Covid and Brexit, Cowgill said the company has seen some positive themes throughout the year that gives it confidence for new fiscal year. “JD is at the pinnacle of the global sports fashion industry. We have a market leading multichannel proposition which continues to enhance its relevance to consumers and has the necessary agility to progress in an environment where the retailing of international brands may see permanent global structural change,” Cowgill said.