Last updated: April 17, 2013 4:50 pm

Blacks acquisition weighs on JD Sports

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JD Sports Fashion’s integration of Blacks Leisure is proving trickier than expected and has knocked full-year pre-tax profits at the retailer.

The group’s outdoor clothing division reported a £15.5m operating loss for the 53 weeks to February 2 as management went about restructuring the business.

Peter Cowgill, executive chairman, blamed the division’s poor performance on “10 years of misdirected management” before JD Sports took it over at the start of 2012.

The group closed 122 Blacks and Millets stores over the year, leaving it with 174 outdoor clothing stores in the UK. JD Sports wants to cut this to 140 in the long term.

Mr Cowgill insisted that the worst was over and that deals with key brands such as outdoor label Jack Wolfskin were driving customers back into its stores.

Along with retailers across the sector, JD Sports has attempted to wring better deals from landlords keen to avoid empty high streets. “In general, landlords have been obliged to be more accommodating. It’s varied quite significantly depending upon the location,” said Mr Cowgill.

Across the group, pre-tax profit fell by almost a fifth to £55.1m, with the poor performance in JD Sports’s outdoor and fashion divisions outweighing strong results at its sport brands.

Revenues rose nearly a fifth to £1.26bn, driven mainly by an improved performance in the group’s main sports division.

Total sales among the group’s sports brands including JD and Size? rose 10.2 per cent over the year to £854.3m, with margins at the division edging down only slightly.

“We attempt to differentiate ourselves as far as possible,” said Mr Cowgill. “We offer more fashionable products and the better segments of the leading brands.” Operating profits in the sports division rose £3.5m to £77.8m.

Mike Ashley’s Sports Direct bought collapsed teen fashion retailer Republic out of administration this year, in a move that analysts saw as an attempt to muscle in on JD Sports’ higher end of the market.

“It could be interpreted as that,” said Mr Cowgill. “It’s not a move we welcome.”

JD Sports’ fashion labels Bank and Scotts struggled, with like-for-like sales down 4.1 per cent to £151.6m. The division swung to an operating loss of £0.5m from a profit of £3.1m last year, with management hoping that a focus on womenswear will make the division profitable once again.

Diluted earnings per share fell 17.2 per cent to 79.7p, while the group’s dividend rose 4 per cent to 26.3p.

Shares in JD Sports were down 1.8 per cent to 728.5 in afternoon trading.

FT Comment

Blacks is far from the black. A £15.5m operating loss is a heftier hit than JD Sports Fashion had expected when it took over the outdoor business in 2012. Management insist the worst is over, but the market does not seem to agree. With a forward price/earnings ratio of 6.9, JD Sports Fashion trades at a huge discount to Sports Direct, on a forward p/e of 17. The two are set to go head-to-head thanks to Sports Direct’s acquisition of Republic – and it’s clear who the market is backing.

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