JD Sports Fashion Plc Final Results (1267C)

Share Name	Share Symbol	Market	Type	Share ISIN	Share Description
Jd Sports Fashion Plc	LSE:JD.	London	Ordinary Share	GB00BM8Q5M07	ORD 0.05P

	Price Change	% Change	Share Price	Bid Price	Offer Price	High Price	Low Price	Open Price	Shares Traded	Last Trade
	-3.75	-3.05%	119.15	119.75	119.85	124.10	119.55	123.05	16,976,445	16:35:22

Industry Sector	Turnover	Profit	EPS - Basic	PE Ratio	Market Cap
Sport Gds Stores, Bike Shops	10.13B	142.5M	0.0275	43.55	6.21B

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RNS Number : 1267C

JD Sports Fashion Plc

11 April 2017

JD SPORTS FASHION PLC

PRELIMINARY RESULTS

FOR THE 52 WEEKSED 28 JANUARY 2017

JD Sports Fashion Plc (the "Group"), a leading retailer of sports, fashion and outdoor brands, today announces its Preliminary Results for the 52 weeks ended 28 January 2017 (2016: 52 weeks ended 30 January 2016).

 
                                              2017        2016   % Change 
                                            GBP000      GBP000 
 
 Revenue                                 2,378,694   1,821,652       +31% 
 
 Gross profit %                              48.9%       48.5% 
 
 Operating profit (before exceptional 
  items)*                                  246,212     158,902       +55% 
 Net interest expense                      (1,425)     (1,775) 
 
 Profit before tax and exceptional 
  items*                                   244,787     157,127       +56% 
 Exceptional items                         (6,419)    (25,496) 
                                        ----------  ---------- 
 
 Profit before tax                         238,368     131,631       +81% 
                                        ----------  ---------- 
 
 Basic earnings per ordinary share 
  (a)                                       18.38p      10.03p 
 Adjusted earnings per ordinary 
  share (a)*                                19.04p      12.27p 
 
 Total dividend payable per ordinary 
  share                                      1.55p       1.48p 
 
 Net cash at period end (b)                213,600     209,421

a) The prior year has been restated to reflect the 5:1 share split which was approved by shareholders at a General Meeting on 24 November 2016

b) Net cash consists of cash and cash equivalents together with interest-bearing loans and borrowings

c) Throughout this release '*' indicates first instance of a term defined and explained in the Glossary at the end of these preliminary results

Group Highlights

-- Record result with headline profit before tax and exceptional items of GBP244.8 million (2016: GBP157.1 million) and profit before tax increasing by 81% to GBP238.4 million (2016: GBP131.6 million).

   --      A third consecutive year of double digit store LFL* growth in Sports Fashion.

-- European development accelerated with a net increase of 54 stores (2016: 38 stores) for the JD fascia across Europe.

-- As part of our international strategy, a further two stores in Malaysia opened in the year with a further store opened in the new financial year. The first JD store in Australia is due to open shortly.

-- Blacks and Millets delivered a positive result for the first time and the acquisition of the market leading Go Outdoors business will further develop our overall Outdoors proposition.

-- Period end net cash of GBP213.6 million (2016: GBP209.4 million) with the significant investments in the year on both acquisitions, principally Go Outdoors, and capital expenditure funded by the inherently strong cash generative nature of our retail fascias.

-- Total capital expenditure of GBP88.0 million (2016: GBP83.5 million) which is expected to increase further in the new financial year as the international rollout of JD continues to gain momentum.

-- Sales, gross margin and operating profit / (loss) before exceptional items of the two business segments are tabulated below:

 
 Period to 28 
  January 2017            Sports Fashion     Outdoor       Total 
                                  GBP000      GBP000      GBP000 
 
 Gross revenue                 2,180,553     198,141   2,378,694 
 Intersegment                          -           -           - 
  revenue 
                       -----------------  ----------  ---------- 
 
 Revenue                       2,180,553     198,141   2,378,694 
                       -----------------  ----------  ---------- 
 
 Gross margin 
  %                                49.4%       43.7%       48.9% 
                       -----------------  ----------  ---------- 
 Operating profit 
  before exceptional 
  items                          245,056       1,156     246,212 
                       -----------------  ----------  ---------- 
 
 
 Period to 30 
  January 2016           Sports Fashion     Outdoor       Total 
                                 GBP000      GBP000      GBP000 
 
 Gross revenue                1,666,477     155,313   1,821,790 
 Intersegment 
  revenue                         (138)           -       (138) 
                      -----------------  ----------  ---------- 
 
 Revenue                      1,666,339     155,313   1,821,652 
                      -----------------  ----------  ---------- 
 
 Gross margin 
  %                               49.0%       43.3%       48.5% 
                      -----------------  ----------  ---------- 
 Operating profit 
  / (loss) before 
  exceptional items             162,864     (3,962)     158,902 
                      -----------------  ----------  ----------

-- Final dividend payable increased by 4.8% to 1.30p (2016 restated: 1.24p) bringing the total dividends payable for the year to 1.55p (2016 restated: 1.48p) per ordinary share, an increase of 4.7%.

Peter Cowgill, Executive Chairman, said:

"This has been another period of very significant progress for the Group with the headline profit before tax and exceptional items increased by 56% to GBP244.8 million (2016: GBP157.1 million). Over a three year period the result has improved by more than 190% which is an outstanding performance and provides the Group with a robust platform for further development.

"The foundation of this success remains our core Sports Fashion fascias where JD's continued strength in its core markets is increasingly being complemented by momentum in our international development, with a net increase of 54 JD stores across mainland Europe during the year.

"It is a great testament to the strength and quality of the people at every level in our businesses that we have been able to consistently deliver outstanding results over a number of years. Our continued strength is principally due to their talent, energy and commitment and I thank everybody involved across the Group for delivering these excellent results.

"Whilst we must recognise that there are external influences which may impact the latter part of the year, notably inflationary pressures arising from Brexit, the Board remains confident in the robustness of the JD proposition and believes that the Group is well positioned for further profitable growth."

Enquiries:

JD Sports Fashion Plc Tel: 0161 767 1000

Peter Cowgill, Executive Chairman

Brian Small, Chief Financial Officer

MHP Communications Tel: 0203 128 8100

Andrew Jaques

Barnaby Fry

Gina Bell

Executive Chairman's Statement

Introduction

This has been another period of very significant progress for the Group with the headline profit before tax and exceptional items increased by 56% to GBP244.8 million (2016: GBP157.1 million). Over a three year period the result has improved by more than 190% which is an outstanding performance and provides the Group with a robust platform for further development.

The foundation of this success remains our core* Sports Fashion fascias where JD's continued strength in its core markets is increasingly being complemented by momentum in our international development, with a net increase of 54 JD stores across mainland Europe during the year. We firmly believe that our approach of presenting a unique and often exclusive sports and fashion premium brand offer in a truly multichannel environment, where innovative digital technology is integrated into a vibrant retail theatre, continues to increase the attractiveness and desirability of our product ranges. These factors provide our stores with a real point of difference for both consumers and our branded supplier partners.

We are fully aware that athletic inspired footwear and apparel has been on trend throughout Europe for a number of seasons. However, whilst this tailwind has clearly had a positive influence, the key to our success in recent years has been the way that we have leveraged these favourable market conditions with our strengthening profitability, a payback for the investments we have made over a number of years to develop the JD retail concept and strengthen our core commercial practices. We continue to invest in these areas, particularly visual merchandising systems, in-store environment and creative marketing as we believe that it is JD's market leading standards in these areas that resonate with an increasing number of brands. Having flexibility in our brand line up is critical and enables us to maintain a trend appropriate assortment.

Although the UK's vote to leave the European Union means that there will be some uncertainties for the immediately foreseeable future, our international expansion will remain a clear strategic focus. There is an ongoing process to strengthen and build the management team and other core operational infrastructure to support an expansion over a wider geography.

In November we acquired the Go Outdoors business for cash consideration of GBP112.3 million with the Group also assuming net debt of approximately GBP11.4 million. Go Outdoors had 58 stores across the UK at acquisition, the majority of which are in destination locations outside city centres, and was a compelling opportunity for a number of reasons:

-- It is active in a range of categories where the Group has either no presence or only a limited presence, including cycling

-- Its out of town destination format is complementary to the high street model of Blacks and Millets

-- Go Outdoors has considerable expertise in developing consumer engagement through its membership scheme and we believe that there are opportunities to enhance this further by drawing on JD's expertise in multichannel retail

The acquisition of Go Outdoors 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 Go Outdoors business separately to our pre-existing Outdoors businesses until they have completed their review. We are complying and assisting fully with this process in order that it can be completed in the most timely and efficient manner.

Sports Fashion

Sports Fashion has had an exceptional year with operating profits (before exceptional items) increasing by 50% to GBP245.0 million (2016: GBP162.9 million). Like for like store sales growth in the period across our European fascias (excluding those businesses acquired in the year) was over 10% which was very pleasing given the strong like for like growth achieved in the previous three years. It would be unreasonable to expect like for like sales growth to be maintained at this level for a further year although we are confident of our ability to exploit the opportunities that continue to exist domestically and, increasingly, internationally.

There has been further progress in Europe during the period with new stores in all of our existing territories, including larger space flagship stores in Cologne and Brussels, complemented by two acquisitions:

-- In March we acquired the trade and store assets of the Aktiesport and Perry Sport retail fascias in the Netherlands from the trustee in bankruptcy of Unlimited Sports Group BV. Our initial focus has been to stabilise the distressed position by trading through a disjointed stock position, recommencing the supply chain, determining the optimal future store portfolio and rationalising an unsustainable operational infrastructure. Significant progress has been made in all of these areas, although it is very much an ongoing exercise and we would not expect these fascias, which are complementary rather than a competitor to the JD fascia, to make a significant contribution in the current financial year. We have begun to address the previous underinvestment in the store portfolio with a major refurbishment of the Perry Sport store on Kalverstraat in Amsterdam and a new store for Aktiesport in the Zuidplein Shopping Centre in Rotterdam.

-- In July we acquired 12 stores in Portugal which previously traded as The Athlete's Foot. These stores have now been converted to JD.

Elsewhere in Europe, our Chausport and Sprinter businesses have also both benefitted from the continuation of the favourable market trends and have traded positively in the period. We have also recently agreed a Memorandum of Understanding with Sonae - SGPS, SA. This sets out the basis for the creation of an Iberian Sports Retail Group combining the Group's existing businesses in Spain and Portugal with the Sport Zone business of Sonae, which is one of the largest sports retailers in the region.

Further afield, we expanded our presence in Malaysia during the period with two additional JD stores in Kuala Lumpur and a fourth store, also in Kuala Lumpur, opened after the year end. These are complemented by the acquisition from our joint venture partner (Stream Enterprises) of 20 small multi-brand stores trading as Sports Empire, Revolution and The Marathon Shop. We have also acquired 32 stores trading as Glue and Superglue in Australia. This business and its management will provide the platform to open JD in Australia with development works ongoing for the first store which will be at the Melbourne Central Shopping Centre. This store will open in Spring 2017 and we anticipate further openings elsewhere in Australia during the year.

We are pleased with the positive performance in our principal fashion businesses, in particular Tessuti, which is gaining momentum and regional presence following the acquisition of stores which traded as Infinities, Aspecto, ML Clothing and Xile. Mainline Menswear, which is an online retailer of premium fashion brands, has also performed exceptionally well with the Scotts business maintaining its profitability after strong growth in the previous year. We would anticipate further positive developments in our Fashion businesses in the current financial year as we build on our previous investments to create strong relationships with the major global premium brands.

The customers in our core JD fascia are extremely digitally aware with a high propensity to use social media in their purchasing decisions. Consequently, we continue to invest heavily in creating a technology rich multichannel environment which not only provides the customer with information about the product but also helps increase the desire to purchase. This digitally integrated approach gives positive benefits to our stores as well as our trading websites with online sales now representing 13.2% of total fascia sales (2016: 10.4%) in JD's principal UK and Ireland market.

The overall gross margin in Sports Fashion is slightly higher than the previous year reflecting continuing low markdown levels and the impact of the stronger Euro on JD's Euro denominated businesses where product is sourced and distributed from the UK. The weakening of sterling against the US Dollar after the Brexit vote will cause some headwinds on margin in 2017 but, working with our global brand partners, we believe we are in a reasonable position to mitigate against these.

Outdoor

The Outdoor fascias have made encouraging progress in the year delivering an operating profit for the first time with an overall segment operating profit before exceptional items of GBP1.2m (2016: loss of GBP4.0 million).

The result in the Blacks and Millets business has improved as we see the positive benefits from actions taken previously to simplify the operational leadership, improve the camping offer and reduce the level of markdowns. The smaller Tiso business, which operates largely in Scotland, has also delivered a positive result and having dealt with a number of legacy underperforming stores now has a better platform from which to develop.

Go Outdoors, which we acquired towards the end of the year, has not had a material impact on the current year results. We are confident that this acquisition will enhance our overall Outdoor offer in the longer term although investment in core operational infrastructure, principally IT and Logistics, will be required to enable the business to reach its full potential. We also believe that there will be opportunities for the Go Outdoors business to leverage from the Group's strength and considerable experience in merchandising management.

Margins were improved over the full year with reduced levels of discounting although these were negated slightly by lower margins in the Go Outdoor business. We continually strive for further improvements in margins but the breadth of supply from the key Outdoor brands into the market and the wide availability of vertically sourced product from both specialist and non-specialist retailers means that Outdoor will inevitably remain a competitive sector.

Financial Summary

Revenue, gross margin and overheads

Total revenue increased by 31% in the year to GBP2,378.7 million (2016: GBP1,821.7 million). Like for like store sales for the 52 week period across all Group fascias, including those in Europe, increased by a further 10%, which was another exceptional performance given the growth seen in previous years.

Total gross margin in the year of 48.9% was slightly ahead of the prior year (2016: 48.5%). Both segments saw improved margins with Sports Fashion increased to 49.4% (2016: 49.0%) and Outdoor increased to 43.7% (2016: 43.3%).

Operating profits and results

Operating profit (before exceptional items) increased substantially by GBP87.3 million to GBP246.2 million (2016: GBP158.9 million) driven by a very strong performance in Sports Fashion with Outdoor delivering a profit for the first time. Operating profit (before exceptional items) has now increased by approximately 140% over the last two financial years (2015: GBP102.2 million).

There were exceptional items in the year of GBP6.4 million (2016: GBP25.5 million) from the impairment of certain intangible assets.

The exceptional items comprised:

 
                                       2017    2016 
                                       GBPm    GBPm 
 
 Non-cash impairment of intangible 
  assets (1)                            6.4    10.6 
 Termination of project to replace 
  core IT systems (2)                     -    14.9 
 
 Total exceptional charge               6.4    25.5 
                                     ======  ======

1. The charge in the period to 28 January 2017 relates to the non-cash impairment of the fascia name balance arising in prior years on the acquisition of ActivInstinct Limited, the fascia name arising in the year on the acquisition of Aspecto Holdings Limited and Infinities Retail Group Holdings Limited and the impairment of the goodwill arising in the year on the acquisition of 2Squared Agency Limited. The charge in the period to 30 January 2016 relates to the non-cash impairment of the goodwill arising in prior years on the acquisition of ActivInstinct Limited, a partial impairment of the Blacks fascia name and the impairment of other goodwill and fascia name balances which were not significant.

2. One off exceptional charge in the period to 30 January 2016 writing off costs incurred on a terminated IT project.

Group profit before tax in the year ultimately increased by 81% to GBP238.4 million (2016: GBP131.6 million).

Working Capital and Cash

The net cash balance at the end of the year was GBP213.6 million (2016: GBP209.4 million) with the expansionary investments, comprising both acquisitions and capital expenditure, funded by strong cash generation from the ongoing trading in our core retail fascias combined with an ongoing focus on robust stock management disciplines.

Cash consideration on acquisitions in the year, net of cash acquired, was GBP138.6m (2016: GBPnil). We will continue to make selected acquisitions and investments where they benefit our strategic development.

Gross capital expenditure (excluding disposal costs) increased by GBP4.5 million to GBP88.0 million (2016: GBP83.5 million). The primary focus of our capital expenditure remains our retail fascias with the spend in the year increasing by GBP12.3 million to GBP64.0 million (2016: GBP51.7 million). International expansion now accounts for more than 50% of this spend with capital expenditure in our retail fascias outside of our core UK and Ireland markets increased by GBP9.7 million to GBP35.7 million (2016: GBP26.0 million). Given our focus on international development and the increased number of territories that the Group operates in, we would anticipate a significant increase in the expenditure on our retail fascias in the new financial year.

Elsewhere, we have now commenced a project to expand our internal use of the existing Kingsway warehouse site. This will be completed later in this financial year with a total projected cost of approximately GBP20 million. Work will also commence shortly on the construction of a 352,000 sqft extension to the Kingsway facility with the site scheduled to be handed over in Spring 2018. The subsequent cost that the Group will incur for the initial phase of fitting out this site, including automation equipment, has been estimated at up to GBP42 million although the majority of this spend will be incurred in the financial year to 2 February 2019.

Store Portfolio

During the period, store numbers have moved as follows:

Sports Fashion Fascias

 
                                                 Sub-Total 
   (Store         JD        JD      JD                  JD 
   Nos.)        UK &    Europe    Asia    Size     & Size?    Chausport    Sprinter     SUR    Australia    Other    Total 
                 ROI 
 
 Period 
  start          361       103       1      36         501           72         104       -            -       59      736 
 New stores       21        46       2       2          71            4          16       1            -        6       98 
 Transfers         -         1       -       1           2            -           -     (1)            -      (1)        - 
 Acquired          -        12       -       -          12            -           -     187           32       42      273 
 Closures       (13)       (5)       -     (2)        (20)          (1)         (1)    (23)            -     (12)     (57) 
              ------  --------  ------  ------  ----------  -----------  ----------  ------  -----------  -------  ------- 
 
 Period 
  end            369       157       3      37         566           75         119     164           32       94    1,050 
              ------  --------  ------  ------  ----------  -----------  ----------  ------  -----------  -------  ------- 
 
 (000 
  Sq Ft) 
 
 Period 
  start        1,371       222       4      63       1,660           81         973       -            -      144    2,858 
 New stores       88       144      15       3         250            4         109       4            -       16      383 
 Extensions       20         2       -       -          22            -           -       -            -        -       22 
 Transfers         -         4       -       1           5            -           -     (4)            -      (1)        - 
 Acquired          -        21       -       -          21            -           -     949          130      121    1,221 
 Closures       (50)       (7)       -     (2)        (59)          (2)        (13)   (113)            -     (35)    (222) 
 
 Period 
  end          1,429       386      19      65       1,899           83       1,069     836          130      245    4,262 
              ------  --------  ------  ------  ----------  -----------  ----------  ------  -----------  -------  -------

In addition, there were eight JD branded Gyms at the period end after four openings in the year.

Outdoor Fascias

 
 (Store                                Ultimate                   Go 
  Nos.)          Blacks     Millets    Outdoors     Tiso    Outdoors     Total 
 
 Period 
  start              60          99           7       16           -       182 
 New stores           3           7           -        -           -        10 
 Transfers            -           -           -        -           -         - 
 Acquired             -           -           -        -          58        58 
 Closures           (4)         (7)           -      (1)           -      (12) 
              ---------  ----------  ----------  -------  ----------  -------- 
 
 Period 
  end                59          99           7       15          58       238 
              ---------  ----------  ----------  -------  ----------  -------- 
 
 (000 Sq 
  Ft) 
 
 Period 
  start             207         205         163       97           -       672 
 New stores          11          12           -        -           -        23 
 Transfers            1         (1)           -        -           -         - 
 Acquired             -           -           -        -       1,699     1,699 
 Closures          (15)        (17)           -      (3)           -      (35) 
 
 Period 
  end               204         199         163       94       1,699     2,359 
              ---------  ----------  ----------  -------  ----------  --------

Dividends and Earnings per Share

The Board proposes paying a final dividend of 1.30p (2016 restated: 1.24p) bringing the total dividend payable for the year to 1.55p (2016 restated: 1.48p) per ordinary share, an increase of 4.7%. The proposed final dividend will be paid on 31 July 2017 to all shareholders on the register at 23 June 2017. We believe that this level of dividend strikes a fair balance for shareholders with appropriate capital retained to facilitate ongoing developments, particularly investment in the international Sports Fashion fascias, which will drive success for the Group, and therefore increased benefits to shareholders, over the longer term.

The adjusted earnings per ordinary share before exceptional items have increased by 55% to 19.04p (2016 restated: 12.27p).

The basic earnings per ordinary share have increased by 83% to 18.38p (2016 restated: 10.03p).

People

It is a great testament to the strength and quality of the people at every level in our businesses that we have been able to consistently deliver outstanding results over a number of years. Our continued strength is principally due to their talent, energy and commitment and I thank everybody involved across the Group for delivering these excellent results.

Given the importance of our people, we were greatly disappointed to be the subject of allegations made in late 2016 about working practices in our Kingsway warehouse, a sophisticated, efficient and fast growing facility which we are very proud of. As the wellbeing of all staff is a key priority for the Group and it is an area where we strive continually to improve performance, the Board appointed Deloitte to conduct an independent review of the allegations made. That review has now been completed and Deloitte's conclusion was that the allegations did not represent a balanced characterisation of working practices at Kingsway. As before, we remain committed to continually reviewing and implementing improvements in day to day procedures there.

Current Trading and Outlook

Whilst we must recognise that there are external influences which may impact the latter part of the year, notably inflationary pressures arising from Brexit, the Board remains confident in the robustness of the JD proposition and believes that the Group is well positioned for further profitable growth.

Given the significant shift in the timing of Easter this year, it is not relevant at this time to report any comparative current year trading figures.

Our next scheduled update will be the announcement of our Interim Results on 12 September 2017.

Peter Cowgill

Executive Chairman

11 April 2017

Consolidated Income Statement