JD Sports Regulatory News (JD.)

15 April 2014

JD Sports Fashion Plc (the "Group"), the leading retailer and distributor of branded sportswear, fashionwear and outdoor clothing and equipment today announces its Preliminary Results for the 52 weeks ended 1 February 2014 (2013: 53 weeks ended 2 February 2013).

a) Revenue in the period to 2 February 2013 included £33.5 million in relation to the Canterbury business which was disposed in the year

b) Net cash consists of cash and cash equivalents together with interest-bearing loans and borrowings

Group Highlights

· Strong sales performance in Sport with gross margins maintained and operating profit (before exceptional items) increased by 20% to £93.4 million (2013: £77.9 million).

· Like for like sales for the 52 week period in the UK and Ireland combined core retail fascias increased by 6.7%.

· Further development of JD's international offering from additional stores in France and Spain and acquisitions of stores in the Netherlands and Germany.

· Turnaround of Outdoor business now progressing with combined Blacks and Millets fascias delivering a breakeven result (before exceptional items) in the second half compared to a loss of £4.9 million in the second half of the previous year and acquisition of Tiso building market presence.

· Difficult year in Fashion with operating losses (before exceptional items) increasing to £6.4 million (2013: loss of £1.7 million). A new Managing Director was appointed in Bank to drive the turnaround.

· Consistent with the presentation of information to the Board, a revised segmental structure has been adopted with small businesses formerly included as a separate Distribution segment allocated to the retail segments they are most associated with. Sales, gross margin and operating profit before exceptional items of these three business segments are tabulated below:

· Final dividend payable increased by 3.0% to 22.65p (2013: 22.00p) bringing the total dividends payable for the year to 27.10p (2013: 26.30p) per ordinary share, an increase of 3.0%. The total dividend payable has increased in excess of 125% since 2009.

Peter Cowgill, Executive Chairman, said:

"I am delighted to report that our core Sports fascias (JD and Size?) delivered another year of substantial progress. It is particularly pleasing that they have produced a record result in our core markets in the UK and Ireland. These businesses continue to provide the foundation for profit and expansion in the Group. We have also seen very positive developments for our Sport fascias in Europe.

"I am encouraged that the Blacks and Millets business achieved a significant improvement in the second half of the year and we expect continued progress in the new financial year.

"The Group continues to be well positioned with its retail proposition, increased financial resources and extensive management experience to take advantage of opportunities both in the UK and internationally."

Enquiries:

Introduction

I am delighted to report that our core Sports fascias (JD and Size?) delivered another year of substantial progress. It is particularly pleasing that they have produced a record result in our core markets in the UK and Ireland. These businesses continue to provide the foundation for profit and expansion in the Group.

We have also seen very positive developments for our Sport fascias in Europe, with an improved result in both France and Spain (where Sprinter has again performed very robustly), and the opening of stores in the Netherlands and Germany which are new territories for the Group. The JD fascia is continuing to develop into a world class retail fascia with sports fashion market-leading standards in product merchandising and retail theatre. We are increasingly confident about its international potential and we believe our key strategic suppliers recognise this too.

We made substantial operational changes during the year in our Blacks and Millets Outdoor business with the staged closure of the legacy offices and warehouse in Northampton and the relocation to the Group's main facilities. Whilst there was inevitably disruption from this process, the resulting integration into Group functions, easier access to senior management and the removal of the unsustainable property costs connected with the Northampton site have given the Blacks and Millets business a significantly better platform on which to develop. Inevitably, improvements in financial performance lag operational changes but I am encouraged that the Blacks and Millets business achieved a significant improvement in the second half of the year and we expect continued progress in the new financial year. The property portfolio for Outdoor continues to be developed. The recent acquisition of Tiso in Scotland (which also includes George Fisher in Keswick) has improved geographical coverage and increased our market share and brand access although it will not, as a business unit, enhance short term earnings. We believe over time these actions will again bring greater support to the Group from key suppliers.

Our Fashion businesses, and notably Bank, have had a more difficult year. The wider Youth Fashion sector continues to undergo significant structural change with a significant market shift in favour of own brand and online Fast Fashion retailers who have tapped into a price competitive environment and a disposable fashion culture. However, Bank still had over 30 million visitors to its stores and over 11 million unique visitors to its website in the year and we strongly believe that, with the right proposition, Bank is capable of once again generating positive returns. We appointed a new Managing Director to the business during the year with her initial focus being to strengthen the proposition by offering faster own brand fashion, better ranging and new brands.

Elsewhere in the Group, we continue to make substantial investments in improving our operational infrastructure. Work continues on the project to change our legacy IT systems to Oracle with the first businesses going live on the new system in 2015. We have also recently started a project to increase the capacity and flexibility at our Kingsway central warehouse following the absorption of Blacks and Millets and the ecommerce fulfillment function during 2013.

Sport

Sport now consists of the Sports retail businesses of JD, Size?, Chausport, Sprinter, Champion Sports and ActivInstinct together with Topgrade, Kooga, Kukri, Focus and Source Lab. The latter were formerly included within our Distribution segment but in our streamlined segmental structure are now classified within Sport as the product which they deal in is predominantly either active sport or sports fashion related.

Sport has had an excellent year. Operating profit (before exceptional items) of the Sport businesses increased significantly by £15.5 million to £93.4 million (2013: £77.9 million including £1.9 million in relation to Canterbury). This is an exceptional performance but one that reflects the continual investment we make in our retail and product propositions. The growth in profitability within Sport principally came from a strong performance in our core UK and Ireland retail fascias. JD is developing into a world class retail fascia and our ultimate objective is to ensure that the high standards in our core UK and Ireland markets are transferred to our new territories as JD becomes increasingly international.

We are satisfied with the performance of our businesses in France. By year end we had 17 JD stores in the country (excluding the Size? store in Paris), after seven new store openings in the year. Subject to property availability, we anticipate continuing our store development in this territory.

Our businesses in Spain have had an encouraging year again, which is pleasing given the well publicised economic difficulties which the country has faced. We have an excellent management team in Spain who understand the geography and the local consumers very well and they have very successfully adapted the Sprinter product proposition to reflect customer demands at this time. The economic situation has meant that, to date, we have been more cautious in our programme for JD in Spain. During the year, we opened three new stores and so have eight stores in the country now. We have worked hard with the Sprinter management team to make the JD product proposition more relevant for the country.

During the year, we acquired a package of stores in the Netherlands from a local fashion retailer which was looking to close one of its fascias. Acquiring the stores in this way gave us immediate critical mass in the country although the majority of the stores are in smaller regional towns and cities. We also acquired the assets of the Isico partnership in Germany which, on acquisition, had 10 small stores primarily in the Berlin area. These stores will be converted to the JD fascia later in 2014 and have already been integrated into the Group's core IT systems. We continue to look for further opportunities in international markets around the world where we can grow with the support of our key brands.

Fashion

Fashion now consists of the established Fashion retail businesses of Bank, Scotts and Tessuti, together with Cloggs and Ark, which were both acquired during the year, and Nicholas Deakins which was formerly included within our Distribution segment but in our streamlined segmental structure is now classified within Fashion.

Losses in Fashion (before exceptional items) increased significantly in the year to £6.4 million (2013: £1.7 million), principally as a result of increased losses at Bank. Losses of this scale are disappointing and we have made management changes to address the issue. Most importantly, in July a new Managing Director, Gwynn Milligan, who has considerable experience of the Youth Fashion sector, came into the Bank business. Her turnaround plan involves both re-establishing Bank's reputation in branded fashion whilst relying on a flexible supply chain to produce faster fashion and more striking value in the price architecture. On the back of this we believe that expanding Bank's multichannel proposition represents a major opportunity. We have taken some internal actions to reduce the central overhead base but we also need to address property costs which are excessive in some legacy leases. We believe that, with the right blend of desirable third party brands supported by credible own brand ranges, Bank can re-engage with its core customers and that ultimately we can deliver an improved financial performance. We have recognised a charge of £11.8 million within exceptional items for the impairment of goodwill which arose on the original acquisition of the business.

The Scotts business has performed well in the year by focussing on its core customers and then delivering a multichannel branded fashion authority and experience to them.

Whilst we continue to experience losses in our Premium Fashion offering (Tessuti and Originals), they have been reduced compared to the prior year. As we have reported previously, we have a number of legacy issues, particularly property, to deal with which are impacting on the financial performance at this time. However, we have made a number of operational improvements to the business during the year with all stores now on the Group's core ERP systems and all stocks now replenished from the Group's Kingsway warehouse. Accordingly, we believe that we are putting the right framework in place to deliver an improved financial performance.

During the year we acquired the Cloggs and Ark businesses from administration. Cloggs is an established online retailer of premium branded fashion footwear whilst Ark is a complementary business to Bank in terms of its customer demographic and product proposition. Both of these businesses have had a difficult year as they recovered from the administration processes and rebuilt their supply chains and supplier relationships. It is too early to comment on the longer term potential of these businesses.

Outdoor

Our pre-existing Blacks and Millets Outdoor fascias have had a mixed year. We started the year with an excess of heavy winter jackets and a lack of Spring / Summer product, particularly in camping and Peter Storm own brand. We had to trade our way out of this position with the significant margin sacrifice required to clear the Winter and earlier season stocks leading to a poor first half trading result. However, the second half of the year, which we acknowledge is traditionally the stronger part of the year, has been much more promising and, ultimately, a breakeven position was achieved in this six month period compared to a loss of £4.9 million in the same period of the previous year.

Operationally, we have made a number of significant operational changes which mean that these businesses are now better controlled and so we have started the new financial year with a substantially improved framework on which to develop. These changes can essentially be categorised into two main areas:

· Whilst there is some commonality of product ranges and brands we believe that Blacks and Millets attract different consumers. Accordingly, we have run Blacks and Millets as two separate fascias since the middle of the year with separate and significantly changed commercial teams. We believe that this decision has had positive effects in testing and developing the Outdoor proposition both instore and online. We are now working to ensure that all of our customers have easy access to our full Outdoor offer.

· We also integrated Blacks into the Group's operational infrastructure by relocating the warehousing and central functions from the previous facility at Northampton and installing the Group ERP systems. Whilst the warehousing move and the installation of the Group core systems were completed by the end of Q1, the final relocation and establishment of the Bury based new commercial teams did not complete until July. Clearly, this had a disrupting effect in the early part of the year but completion of the reorganisation together with the elimination of the unsustainable property costs associated with the Northampton facility have had positive effects on the business in the second half.

Later in the year we acquired 60% of the loss-making Tiso business which, on acquisition, had 17 premium branded Outdoor stores. These stores are primarily located in Scotland, although Tiso also owned the highly regarded and profitable George Fisher store in Keswick. Tiso is an iconic business in the Scottish Outdoor world and this acquisition has given us increased buying power, additional management expertise and brand access, as we continue to establish JD Sports Fashion's leading position in the Outdoor market.

Overall losses (before exceptional items) in Outdoor have reduced significantly to £8.8 million (2013: £14.9 million). We anticipate further significant progress in Blacks and Millets in the new financial year tempered by some initial operating losses from the newly acquired Tiso business.

Financials Summary

Revenue

Total revenue increased by 5.7% in the year to £1,330.6 million (2013: £1,258.9 million including £33.5 million in relation to the Canterbury business which was disposed in the year). Like for like sales for the 52 week period in the UK and Ireland combined core retail fascias increased by 6.7% which was an excellent performance.

Gross margin

Total Gross Margin fell from 48.7% to 48.5% reflecting the impact of the considerable margin sacrifice in the Blacks and Millets fascias, principally in the first half, as we cleared excess winter stocks and additional markdown activity in our Fashion retail businesses. We are, however, greatly encouraged by the robust performance in our Sports businesses where margins were maintained at prior year levels.

Operating profits

Operating profit (before exceptional items) increased substantially by £16.9 million to £78.2 million (2013: £61.3 million) with an exceptional performance in Sport and a reduction in the losses in Outdoor. We expect further significant progress in Outdoor in the new financial year.

Exceptional items increased significantly in the year to £19.1 million (2013: £5.3 million) principally due to a non-cash charge of £11.8m to write off goodwill relating to the Bank business. After allowing for exceptional items, Group operating profit increased by £3.1 million to £59.1 million (2013: £56.0 million). The exceptional items comprised:

(1) Reorganisation of the warehouse operations consisting of provisions for onerous property leases, redundancy costs and dilapidations at the vacant premises.

(2) Relates to the restructuring of the head office and warehouse operations of the Blacks, Champion and Kooga businesses. The prior period also includes costs relating to the closure of the Canterbury North America LLC and Canterbury European Fashionwear operations following the decision to wind down the separate businesses.

(3) Relates to the impairment in both periods of the goodwill arising on the acquisition of Bank.

(4) Profit on the disposal of the Canterbury group of businesses to Pentland Group plc in September 2012 (see note 5).

Working capital, financing and amended bank facilities

Ongoing acquisition activity and further substantial investments in both the retail fascias and operational infrastructure offset the strong cash generation from trading in the year with net cash at the year end almost unchanged at £45.3 million (2013: £45.6 million).

On 10 July 2013, the Group amended and extended its syndicated committed £75,000,000 bank facility which previously expired on 11 October 2015. The facility has been amended by increasing the syndicated committed facility by £80,000,000 to £155,000,000. The expiry date has also been extended by two years and so the amended facility now expires on 11 October 2017. This enhanced facility enables us to continue to make acquisitions when opportunities occur whilst maintaining current levels of investment in the retail property portfolio.

Gross capital expenditure (excluding disposal costs) increased by £4.7 million to £48.2 million (2013: £43.5 million). Our commitment to delivering the best possible experience to our customers means that investment in our retail fascias, both in terms of taking new stores where appropriate and refurbishing existing space, remains substantial. A total of £27.9 million was invested in our retail fascias during the year (2013: £27.2 million). Elsewhere, our continuing investment in the Oracle project increased to £5.1 million in the year (2013: £2.7 million). Gross capital expenditure included £4.6 million (2013: £nil) in relation to bespoke software development which is classified within Intangible Assets.

Ongoing confidence in the potential for JD internationally combined with ongoing investment in our other fascias, investment in the new core Oracle ERP system and further works to increase our capabilities at Kingsway means that overall capital expenditure is likely to increase further this year.

Working capital remains well controlled with suppliers continuing to be paid to agreed terms and settlement discounts taken whenever due.

Store Portfolio

During the period, store numbers (excluding trading websites) have moved as follows:

Sports Fascias

1. Includes Champion stores which are now serviced and managed by the UK team but excludes Size store in Dublin

2. Excludes the Size store in Les Halles, Paris

3. Being all stores in all territories which are managed by one team

Fashion Fascias

Outdoor Fascias

Dividends and Earnings per Share

The Board proposes paying a final dividend of 22.65p (2013: 22.00p) bringing the total dividend payable for the year to 27.10p (2013: 26.30p) per ordinary share. The proposed final dividend will be paid on 4 August 2014 to all shareholders on the register at 9 May 2014. The total dividends payable for the year have therefore increased by a further 3% with a cumulative growth since 2009 in excess of 125%. Future dividend growth will be limited with cash retained as we look to drive the continuing overseas growth of the Sports fascias.

The adjusted earnings per ordinary share before exceptional items were 117.12p (2013: 88.51p).

The basic earnings per ordinary share were 82.52p (2013: 79.71p).

Board Effectiveness

As Executive Chairman, I am responsible for the leadership of the Board and ensuring its effectiveness in all aspects of its role. The Board is then responsible for the Group's strategic development, review of performance against the business objectives, overseeing risk and maintaining effective corporate governance including health and safety, environmental, social and ethical matters.

People

The exceptional performance in Sport is a testament to the skills, energy, experience and professionalism of everyone involved in these businesses. JD, in particular, is a world class retail fascia and continues to set higher standards that we challenge our other businesses to match. 

Colin Archer retired as a non-executive director during the year after 12 years of loyal service to the Group. The Board would like to thank him for his great contribution to the Board in this period. His role as senior non-executive director and Chairman of the Audit Committee has been taken over by Martin Davies.

Current Trading and Outlook

Given the significant change in the timing of Easter relative to last year, we believe that our Interim Management Statement, scheduled for release on 17 June 2014, is a more appropriate and meaningful time at which to give our first update on trading for this year. We are, however, encouraged by the underlying trends to date across the principal parts of the business.

Ultimately, the Group continues to be well positioned with its retail proposition, increased financial resources and extensive management experience to take advantage of opportunities both in the UK and internationally.

Peter Cowgill

Executive Chairman

15 April 2014

Consolidated Income Statement

For the 52 weeks ended 1 February 2014

Consolidated Statement of Comprehensive Income

For the 52 weeks ended 1 February 2014

Consolidated Statement of Financial Position

As at 1 February 2014

Consolidated Statement of Changes in Equity

For the 52 weeks ended 1 February 2014

Consolidated Statement of Changes in Equity (continued)

For the 52 weeks ended 1 February 2014

Consolidated Statement of Cash Flows

For the 52 weeks ended 1 February 2014

Analysis of Net Cash

As at 1 February 2014

1. Segmental analysis

IFRS 8 'Operating Segments' requires the Group's segments to be identified on the basis of internal reports about components of the Group that are regularly reviewed by the Chief Operating Decision Maker to allocate resources to the segments and to assess their performance. The Chief Operating Decision Maker is considered to be the Executive Chairman of JD Sports Fashion Plc.

Information reported to the Chief Operating Decision Maker is focused on the nature of the businesses within the Group. In the current period the reportable segments have been adjusted to reflect the streamlining of the Group's businesses into three main operating divisions. This has resulted in those businesses that were previously allocated to the distribution segment now being allocated to the Sport and Fashion segments based on the nature of the products they supply. The Group's revised reportable segments under IFRS 8 are therefore as follows:

· Sport - includes the results of JD Sports Fashion Plc, John David Sports Fashion (Ireland) Limited, Spodis SA, Champion Sports Ireland, JD Sprinter Holdings 2010 SL (including subsidiary companies), JD Sports Fashion BV, JD Sports Fashion Germany GmbH, ActivInstinct Limited, Duffer of St George Limited, Topgrade Sportswear Limited, Kooga Rugby Limited, Focus Brands Limited (including subsidiary companies), Kukri Sports Limited (including global subsidiary companies) and Source Lab Limited. Canterbury Limited (including global subsidiary companies) was also included in the prior period until the point of disposal (see note 5)

· Fashion - includes the results of Bank Fashion Limited, R.D. Scott Limited, Premium Fashion Limited, Tessuti Group Limited (including subsidiary companies), Cloggs Online Limited, Ark Fashion Limited and Nicholas Deakins Limited

· Outdoor - includes the results of Blacks Outdoor Retail Limited and Tiso Group Limited (including subsidiary companies)

The Chief Operating Decision Maker receives and reviews segmental operating profit. Certain central administrative costs including Group Directors' salaries are included within the Group's core 'Sport' result. This is consistent with the results as reported to the Chief Operating Decision Maker.

IFRS 8 requires disclosure of information regarding revenue from major products and customers. The majority of the Group's revenue is derived from the retail of a wide range of apparel, footwear and accessories to the general public. As such, the disclosure of revenues from major customers is not appropriate. Disclosure of revenue from major product groups is not provided at this time due to the cost involved to develop a reliable product split on a same category basis across all companies in the Group.

Intersegment transactions are undertaken in the ordinary course of business on arm's length terms.

The Board consider that certain items are cross divisional in nature and cannot be allocated between the segments on a meaningful basis. Net funding costs and taxation are treated as unallocated reflecting the nature of the Group's syndicated borrowing facilities and its tax group. Drawdowns from the Group's syndicated borrowing facility of £26,000,000 (2013: £nil), a deferred tax liability of £4,283,000 (2013: liability of £3,852,000) and an income tax liability of £11,596,000 (2013: £8,817,000) are included within the unallocated segment.

Each segment is shown net of intercompany transactions and balances within that segment. The eliminations remove intercompany transactions and balances between different segments which primarily relate to the net down of long term loans and short term working capital funding provided by JD Sports Fashion Plc (within Sport) to other companies in the Group, and intercompany trading between companies in different segments.

Business Segments

Information regarding the Group's reportable operating segments for the 52 weeks to 1 February 2014 is shown below: