JD warns of more trouble in store for the high street
Thursday 14 April 2011
JD Sports Fashion added to the anxiety of retailers yesterday, warning it was "extremely cautious" about its outlook for the sector, despite posting a sharp jump in annual profits to nearly £80m.
In addition to the ongoing squeeze on consumer spending, the sportswear retailer also said the recent rise in VAT means its sales will be £16m lower for the 12 months to 28 January 2012, if it achieves the same level of gross sales as last year. Peter Cowgill, the chairman of JD Sports Fashion, said: "Simultaneously, but quite separately, we anticipate a reduction of real expenditure levels by consumers at a time when product costs, particularly imported goods, are increasing at a material rate."
Given the late timing of Easter, JD said it was difficult to gauge trading in the early part of its new financial year, though the group's underlying sales, including online, inched up by 0.4 per cent for the eight weeks to 26 March.
But Mr Cowgill blamed the fiscal changes mentioned for a decline in net sale and margins over the period. In a thinly-veiled attack on the tax burden imposed by the Government, he said: "Following successive years of record results for the group, the retail environment has recently been significantly impacted by adverse fiscal changes in addition to the multiple current economic pressures. "
He added: "Our core business already possesses very strong sales densities and margins, being the result of continual growth in both measures for several years. Against that background, therefore, it is inevitable that the board is extremely cautious in its outlook, particularly when the profits achieved for the year to 29 January 2011 are effectively rebased purely as a result of the impact of increased VAT."
His downbeat views on the year ahead follow a series of profits warnings from retailers, including Mothercare, HMV and Dixons Retail, in recent weeks, as consumers sharply rein in their spending in the wake of record petrol prices, fears over, and actual, job losses and tax rises. Flying Brands, the mail-order gardening goods business, added its name to that list yesterday, with a profits warning of its own.
Despite these pressures, JD delivered its seventh successive year of "good progress" on sales and profitability.
While its rival JJB Sports has been struggling for the past two and a half years, the group has continued to grow strongly. JD pulled out of talks to buy the beleaguered JJB last month after complaining it had received "only limited non-public information".
JD's sustained growth has been driven partly by its exclusive relationships with brand giants such as Nike and Adidas that enable it to get the latest ranges in its shops before other chains. But JD has also benefited from robust demand for its own brands Carbrini, McKenzie and Duffer, which typically deliver enhanced margins. For the 52 weeks to 29 January, the group's pre-tax profits rocketed by 28 per cent to £78.63m, on revenues up by 15 per cent to £883.67m.
Its sales received a modest boost from its acquisitions of the Sonnetti, Chilli Pepper and Nanny State brands. The retailer operates 563 stores, including the eponymous JD outlets and Size? trainer shops, Bank and Scotts fashion chains, and 76 stores in France under the Chausport banner.
Carly Syme, a retail analyst at Verdict, said: "It's the JD Sports business that is driving its success, rather than its other fascias, with its offer of branded and own-label products in aspirational store environments. Storeopenings in key locations including airports and train stations have also helped boost footfall and sales."
Consumer confidence remains at historically low levels, but has picked up slightly over the past month, data published by the Nationwide Building Society revealed today. It said consumers had responded positively to the continuation of low interest rates last month and also that they felt marginally more optimistic about the prospects for their household finances this year. Even so, the 13-point rise in confidence, on the scale Nationwide uses, was lower than the dip seen in February.
'After a fairly dismal start to the year, there was some respite in March with consumer confidence picking up from the record lows seen in February,' said Robert Gardner, Nationwide's chief economist. The building society added that its survey had been conducted before the Budget last month.
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