- Prachi Singh |
In the midst of a tough trading environment, particularly in the second half, Sports Direct Group said that it had a disappointing financial result for FY16 with underlying EBITDA largely flat on FY15. Group revenue increased by 2.5 percent to 2,904.3 million pounds (3,764 million dollars) in the year, which the company said was primarily due to the increase in Sports Retail revenue of 3.9 percent to 2,491.6 million pounds (3,229.6 million dollars).
Commenting on the preliminary update, Dave Forsey, Chief Executive, said, “The Group has delivered a disappointing full year financial performance, impacted primarily by a tough trading environment in the second half across our sports retail businesses. Our continued investment in upgrading and relocating stores, including key location doors such as Leeds and Plymouth, has been well received by our leading third party suppliers. Unfortunately our disappointing results have meant that the Group has not achieved the first EBITDA target set by the 2015 Share Scheme.”
Sports Direct posts disappointing annual results
Premium lifestyle revenue fell by 12.7 percent, largely due to the closure of loss-making stores in the period, and revenue was up 2.3 percent in brands, with increases in both wholesale and licensing. Group gross margin in the year increased by 40 basis points from 43.8 percent to 44.2 percent. Sports Retail maintained the previous year’s gross margin at 44.6 percent, while the Brands division gross margin increased by 180 basis points from 40.3 percent to 42.1 percent, and Premium Lifestyle’s gross margin increased by 330 basis points from 38.8 percent to 42.1 percent, which was largely due to discounting and clearance of stock in the prior year.
Group underlying EBITDA (pre-Share Scheme costs) for the year was down 0.5 percent and Sports Retail underlying EBITDA was down 2.2 percent, while the Premium Lifestyle and Brands division underlying EBITDA increased to below 5.1million pounds (6.6 million dollars) and 37.5 million pounds (48.5 million dollars) respectively. The Premium Lifestyle division achieved a breakeven underlying EBITDA result in the second half of FY16.
Group underlying profit before tax decreased 8.4 percent due to lower EBITDA and higher depreciation charges. In line with this movement, underlying EPS for the year decreased by 8.7 percent to 35.5p.
Premium Lifestyle and Brands business review
Premium Lifestyle sales decreased 12.7 percent to 181.2 million pounds (234.6 million dollars), due to the closure of loss-making stores in the year. The Underlying EBITDA loss for Premium Lifestyle decreased to 5.1 million pounds (6.6 million dollars) and achieved breakeven in the second half. The company expects to see further benefits of the rationalisation efforts in future years. At the year end, the Premium Lifestyle division traded from 83 stores under four main fascias.
The Brands portfolio includes a wide variety of sport and lifestyle brands. The Group’s Sports Retail division sells products under these brands in its stores, and the brands division sells the brands through its wholesale and licensing activities. The brands division’s total revenue increased by 2.3 percent to 231.5 million pounds (299.8 million dollars). Wholesale revenues were up 1.8 percent to 196.7 million pounds (254.6 million dollars), including growth in the challenging UK market. Trading in the US market was in line with expectations. Licensing revenues in the year were up 5.1 percent and the company signed 35 new licence agreements and renewed several existing licensees, covering multiple brands, product categories and geographies, during the year. The key growth areas are now expected to include Australasia and Asia Pacific.
Uncertain about the outlook ahead
Trading since the start of May and leading up to the EU referendum was broadly in line with management expectations albeit with the continued volatility seen in the wider retail sector. Since the EU vote, the company expects the current political uncertainty, and potential weakness in the UK’s short to medium term economic outlook, is likely to act as a continuing drag on consumer confidence. When combined with the structural difficulties for UK retailers, including high street footfall, and its exposure to the weakness of the pound against the US dollar, these factors make the current outlook for FY17 somewhat uncertain.