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Sports Direct posts profits rise despite early World Cup exit

Sports Direct group sales increased 4.7% to £2.8bn in the year to April 26 as underlying profit before tax increased 21% to £300.3m.

The group, founded and majority controlled by Mike Ashley, said gross margin rose by 110 basis points during the period to 43.8%, driven by the sports retail segment which was up by 170 basis points to 44.6%.

“The group has delivered another solid set of results in spite of challenging trading conditions including the adverse impact on performance during the period of England’s early departure from the FIFA World Cup in Brazil and unseasonably mild weather during Autumn, reducing footfall,” said chief executive Dave Forsey.

The Sports Retail division increased sales by 5.5% to £2.4bn, driven mainly by growth in the UK and offset by a weak winter sports season in Europe and adverse currency movements.

Sports Direct launched click-and-collect in the second half of the year and it now accounts for over 20% of all UK online orders, which Forsey said is “exceptional considering we charge £4.99 for this service”. Online sales represent 16.5% of Sports Retail sales, up from 15.1% in 2014, excluding wholesale sales.

In the Premium Lifestyle segment, which includes USC, Cruise, Van Mildert, Flannels.com and others, the group reported sales fell by 3% to £207.6m, due to the closure of loss-making stores.

Operating costs fell by 17.3% to £88.2m which it said was due to the “continued rationalisation of the USC and Republic businesses and synergies gained by the consolidation of key head office functions in Flannels.com, Cruise and Van Mildert and the integration of the distribution function”.

In the Brands division, sales increased by 4.1% to £226.4m and wholesale sales were up 4.4% to £193.3m. However, Brands gross margin fell by 280 basis points to 40.3% and wholesale gross margins fell by 310 basis points to 30.1% due to the shift in the sales mix to lower margin lines.

The group opened 23 new stores in the UK and nine stores in Europe. It said the city centre format such as the 50,000 sq ft four-floor Sports Direct store on Oxford Street in London, which opened over a year ago, has been well received by both customers and suppliers and will be rolled out further.

It expanded its Glasgow city centre store by approximately 28,000 sq ft during the period and it has recently acquired the freehold of the 50,000 sq ft former Primark store in Leeds to open in the same format, later this summer.

The construction of the third phase of its Shirebrook campus expansion is underway, consisting an additional warehouse and office facility spanning a 700,000 sq ft footprint. The firm is about to expand into the first warehouse, and the remaining areas of the same warehouse later this year. It has also started work on an additional retail unit and training centre at Shirebrook, which is expected to be complete at the end of the year.

After Sports Direct has come under fire for its use of zero-hour contracts earlier this year, non-executive chairman Dr Keith Hellawell said: “Much of the comment regarding the Group’s use of zero-hour contracts has been unfounded and inaccurate. We comply fully with all legal requirements which relate to casual workers, including sick pay, holiday pay, and freedom to gain other employment. Casual workers also participate in general incentive schemes.”

The group said it would revise down its 2015/16 adjusted core earnings target of £480m to £420m, as it was considered to be “unreasonably challenging” after it failed to grow through further acquisitions over the past year.

All other targets for the next three years of the scheme to 2019 remain unchanged.

@Tara_Hounslea

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