Sports Direct powers ahead on sportswear division success as lifestyle struggles

Just how powerful is Sports Direct International? Very, judging by its year-end figures released Thursday. The UK-based discount sportswear retailer saw its year-end profit leap, continued strength in the US and a surge in m-commerce. That was despite some major challenges including England’s early exit from the football (soccer) World Cup and autumn weather that simple wouldn’t play ball.

And while the company didn’t actually comment directly on current trading, reading between the lines, it looks strong, especially on the back of investment in omnichannel and stores.

So let’s look at just what the undisputed UK market leader achieved in its last financial year. Profit soared to £240.4m/39p a share from £180.25m/29.2p a year ago, while pre-tax underlying profit jumped 20.5% to £300.3m and related EPS increased 21.2% to 38.9 p.

Group revenue increased 4.7% to £2.83bn on the strength of its Sports Retail division, where revenues grew 5.5% and comp sales lifted 7.4%. Sports Retail gross margin increased 170 bps to 44.6%.

But let’s not break out the champagne just yet as there were some weaker performances. The Premium Lifestyle division saw revenue down 3%, largely due to the closure of lossmaking stores. Premium Lifestyle gross margin for the year fell 150 basis points to 38.8% due to online clearances.

Back with the good news, the Brands division saw total revenue up 4.1% to £226.4m while wholesale revenues lifted 4.4% to £193.3m, including growth in the “challenging” UK market.

Trading in the US market was in line with expectations and continues to represent around 40% of total wholesale sales.

Brands gross margin fell 280 basis points to 40.3% while wholesale gross margins fell 310 basis points to 30.1%, largely due to a shift in the sales mix towards lower margin lines.

Online revenue increased 14.4% to £383.8m in the year, driven largely by the successful launch of click & collect in the UK during the second half of the year, which now accounts for over 20% of all domestic online orders.

“This performance is exceptional considering we charge £4.99 for this service. Online sales represented 16.5% of Sports Retail sales, up from 15.1% a year ago,” the company said. Importantly, mobile traffic now accounts for over 50% of all online visits.

Chief executive Dave Forsey was understandably upbeat: “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.

“Trading since the period end has been in line with management expectations and will continue to be driven by improvements in product range and availability, optimisation of both our in-store and web offerings, the introduction of click & collect in the UK and further investment in our store portfolio.”

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