JD Sports Fashion today said its agile omnichannel capabilities helped it retain sales and customers despite an “unprecedented period of global uncertainty”. Sales and profits were both hit as a result of temporary store closures in Covid-19 lockdowns in Europe and the US – most of its shops closed for up to three months.
But omnichannel trading helped it to retain about 60% of its business, compared to the same time last year, while stores were closed. Pent-up demand boosted trading by about 20% year-on-year when stores did reopen. Now the retail group is planning for the next challenge, Brexit, by operating through a small test warehouse in Belgium that will help it learn how best to shape the group’s European supply chain in the long-term.
JD Sports Fashion today reported revenues of £2.5bn in the 26 weeks to August 1. That’s 6.5% down from £2.7bn a year earlier. Sales fell by 4.6% for its sports fashion business and by 30.2% for its outdoor business, which includes Go Outdoors, Blacks and Millets. Profits before taxes and exceptional items came in at £61.9m, down 61% from £158.6m a year earlier. After one-off costs of £20.4m, bottom-line pre-tax profits stood at £41.5m, down by 68% from £129.9m last time.
JD Sports Fashion executive chairman Peter Cowgill said: "Continuing outbreaks of the virus and periodic strengthening of public safety measures in a number of our global territories, including forced temporary store closures and the ongoing requirement to maintain strict social distancing in our warehouses, makes us cognisant that further challenges lie ahead.
"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 recognised 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 fulfilment, including performance marketing. Whilst these additional costs have impacted on the result for the period, the group has retained a significant level of profitability."
He said performance since store reopenings had been encouraging but that footfall remained weak.
"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. These, combined with an agile operational infrastructure, provide us with a robust platform for further positive development."
The retail group withheld some of its rent payments during Covid-19 lockdowns and says it is looking for new ways of managing its rents to reflect supply and demand. It says it cannot be fair to pay full rents as per its contracts where there is “no realistic prospect of any income from a store” – as happened during its store lockdowns. It added: “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. 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.”
JD Sports Fashion is exploring new ways of managing its supply chain following Brexit. It has opened an 80,000 sq ft warehouse in Belgium that is now handling product bound for some European shops. The site is not big enough to handle all of its European stock and does not fulfil any orders for online sales, but it is helping the business to learn as it plans for “a longer-term, more permanent European supply chain strategy”.
JD Sports said: “We are very conscious that the UK’s transition period with the EU ends at the end of this year and, at this stage, there is a significant risk that the UK may exit that transition period with either no agreement or with perhaps just a very basic and limited free trade agreement. Given the current status of our supply chain in Europe and the fact that 90% of our stock is purchased from international brands on a full landed cost basis, where we have no visibility of the original factory cost, there is some risk of duties being payable for goods which transit to / from countries in the EU. We are currently looking at options to mitigate some of this in the short term whilst we establish a more permanent European supply chain infrastructure.”
JD Sports Fashion is currently taking the Competition and Markets’ Authority to a judicial review at the Competition Appeal Tribunal against a ruling that it must sell Footasylum in order to ensure fair competition. The main hearing has been listed for September 23.
During the first-half it also restructured Go Outdoors through an administration and has now merged its stock management systems with those of the Blacks and Millets business in order to make the business more efficient through
JD Sports and Blacks are Leading retailers in RXUK Top500 research, Go Outdoors and Millets are Top100, while Footasylum is Top50.