JD Sports Regulatory News (JD.)

13 April 2011

JD Sports Fashion Plc (the 'Group'), the leading retailer and distributor of sport and athletic inspired fashion apparel and footwear, today announces its Preliminary Results for the 52 weeks ended 29 January 2011.

a) The exceptional items in the current year relate to unrealised gains on foreign exchange contracts and the reversal of the impairment of the investment held by Focus Brands Limited in Focus Group Holdings Limited, following repayment of original purchase consideration by the vendors of Focus Group Holdings Limited. The exceptional items in the prior year relate entirely to unrealised losses on foreign exchange contracts.

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

·; Total revenue increased by 14.8% to £883.7 million (2010: £769.8 million) with like for like revenue increased by 3.1% (Sports Fascias 3.8%; Fashion Fascias -0.7%)

·; Gross margin improved to 49.5% (2010: 49.3%) with increased margin in all reporting segments although the increase is diluted by greater participation in Group performance from lower margin distribution businesses which now represent 9.5% of Group revenue (2010: 5.4%)

·; Group profit before tax and exceptional items up 21% to £81.6 million (2010: £67.4 million)

·; Profit before tax up 28% to £78.6 million (2010: £61.4 million)

·; Net cash position at the period end increased to £86.1 million (2010: £60.5 million)

·; Acquisition of Sonneti, Chilli Pepper and Nanny State brands

·; Capital expenditure increased by £10.1m to £33.0m (2010: £22.9m) which included the first three JD stores in France

·; The new leased warehouse building shell in Rochdale (866,250 sq ft including mezzanines) has now been handed over by the developers and the fit out process has started. Total anticipated fit out costs are approximately £20.0m of which £3.9m was incurred in the year. The move to full operational use will be phased through the early months of 2012

·; Final dividend payable increased by 31% to 19.2p (2010: 14.7p) bringing the total dividends payable for the year up to 23.0p (2010: 18.0p), an increase of 28% with a cumulative rise of 92% over the last two years

·; Acquisition of Champion completed post year end, enhancing presence in the Republic of Ireland

Peter Cowgill, Executive Chairman, said:

"The year ended 29 January 2011 has been the seventh successive year of good progress in revenue and profitability for the Group. Profit before tax and exceptional items improved by 21% to £81.6 million (2010: £67.4 million). Such sustained performance continues to reflect the strength and uniqueness of our brand and fascia offers as well as the strength of our management teams. Our very strong cash position has also allowed us to continue to invest in brands, our store portfolios and new businesses during the year and since the year end.

"Confidence arising from the sustained period of results improvement and the strength of our balance sheet has enabled the Board to propose another significant increase in the level of dividends with a final proposed dividend increase of 31% to 19.2p (2010: 14.7p) bringing the total dividends payable for the year to 23.0p (2010: 18.0p), an increase of 28% following on from the rises of 50% and 41% in the last two years.

"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. 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.

"Management remain highly focused on all avenues of revenue growth, margin protection and cost control available to us to endeavour to deliver the optimum outturn, minimise the impact of the factors above, and with a strong balance sheet and dominant market position in our core business, we expect to be able to deliver operational and financial progress for the Group over the long term."

Enquiries:

JD Sports Fashion Plc Tel: 0161 767 1000

Peter Cowgill, Executive Chairman

Barry Bown, Chief Executive Officer

Brian Small, Finance Director

MHP Communications Tel: 020 3128 8100

Andrew Jaques

Barnaby Fry

Ian Payne

Executive Chairman's Statement

Introduction

The year ended 29 January 2011 has been the seventh successive year of good progress in revenue and profitability for the Group. Profit before tax and exceptional items improved by 21% to £81.6 million (2010: £67.4 million). Such sustained performance continues to reflect the strength and uniqueness of our brand and fascia offers as well as the strength of our management teams. Our very strong cash position has also allowed us to continue to invest in brands, our store portfolios and new businesses during the year and since the year end.

Group profit before tax increased by 28% in the year to £78.6 million (2010: £61.4 million) and Group profit after tax has increased by 31% to £55.9 million (2010: £42.7million).

Group operating profit (before exceptional items) for the year was up 19% to £79.9 million (2010: £67.3 million) and comprises a Sports Fascias profit of £73.3 million (2010: £64.1 million), a Fashion Fascias profit of £6.4 million (2010: £3.3 million) and a Distribution segment profit of £0.2 million (2010: loss of £0.1 million).

The year end net cash position has risen to £86.1 million (2010: £60.5 million). The Group has recently negotiated terms on new committed rolling credit and working capital facilities totalling £75 million. These new facilities expire in October 2015 and when combined with our cash resources give the Group the funding capability to continue to develop operationally and by acquisition both in the United Kingdom and overseas. Confidence arising from the sustained period of results improvement and the strength of our balance sheet has enabled the Board to propose another significant increase in the level of dividends with a final proposed dividend increase of 31% to 19.2p (2010: 14.7p) bringing the total dividends payable for the year to 23.0p (2010: 18.0p), an increase of 28% following on from the rises of 50% and 41% in the last two years.

Acquisitions

The Sports and Fashion retail offers continue to provide consumers with a unique mix of sports and fashion brands in both apparel and footwear including a substantial range of exclusive products as well as exclusive licensed and own brands such as McKenzie and Carbrini. We have continued to invest in increasing the own brand offers through the acquisition of the Sonneti, Chilli Pepper, and Nanny State brands for a total consideration of £2.1 million. Since the year end we have continued this strategy by acquiring the Fenchurch brand for £1.1 million.

The strength of the JD offering gives potential for further replication internationally, albeit in Europe initially. We see this as a key opportunity wherever brands recognise our strength in developing brands and maintaining their prestige. We started to exploit this opportunity when we acquired the French retailer Chausport in May 2009. The first full year since the acquisition contributed £36.4 million of revenue and £0.5 million of operating profit. Like for like sales grew by 12.5% in the year and gross margin improved by 2.7% but overheads increased to support the opening of three JD stores in France which opened late in the year. These latter stores are performing to expectations so far.

We are looking at potential acquisitions and joint ventures in other territories on a regular basis and we have no doubt that the Chausport acquisition has enhanced our visibility and credibility as an overseas investor. Since the year end we have acquired a further Sports Fascia chain in the Republic of Ireland, Champion Sports (Holdings) ('Champion'), for a nominal amount and have also advanced €17.1 million to allow it to settle all of its indebtedness save for €2.5 million of leasing finance. This has added 22 stores to the 8 already operated in the Republic of Ireland and gives us a significant market position throughout the whole of Ireland. It also gives us more local knowledge and a strong management team on the ground.

After the year end we also acquired 80% of Kukri Sports Limited which provides a bespoke teamwear offering across a wide range of sports in a number of countries.

Sports Fascias

The Sports Fascias' total revenue increased by 8% during the period to £667.2 million (2010: £615.5 million) with like for like sales for the year up by a further 3.8% (2010: 2.3%).

Gross margin achieved in the Sports Fascias increased from 50.6% to 51.0% which we attribute to the continued improvement in the terminal stock position in JD plus the impact from the extension of enhanced Group supplier terms into the Chausport business.

As a result of this improved margin and continuing enhancement of the store portfolio and its efficiencies, the operating profit (before exceptional items) of the Sports Fascias rose to £73.3 million (2010: £64.1 million) in the year, including a contribution of £0.5 million from Chausport (2010: £0.7 million). The contribution from Chausport is lower than the previous year due to the seasonal losses incurred in the early part of the year which were pre-acquisition in the prior year.

The programme of store development has continued with 28 store openings and 24 refurbishments or conversions. These include the opening of our first 3 JD stores in France (of which 1 was a conversion of a former Chausport store in Lille), 5 new Chausport stores, 2 new Size? stores and 3 new JD stores in airport locations. We have also opened a JD store at one of the UK's busiest train stations (Liverpool Street) which is our first store in this type of location and, if successful, could be replicated in other major stations. 21 Sports Fascias stores were closed in the period including 6 smaller Chausport stores.

Fashion Fascias

The Fashion Fascias are Bank and Scotts.

The Bank Fascia stores sell largely branded fashion to both males and females, predominantly for the teenage to mid twenties sector. In the year the store portfolio grew from 65 stores to 74 stores, still based predominantly in the North and the Midlands. Total revenue in the year was £102.4 million (2010: £82.8 million). This represents an organic decrease of 0.9% (2010: +4.7%) although this decrease came from trading in the first half of the year when the organic performance was measured against heavy clearance from the prior year. This reduction in clearance activity is reflected in the fact that gross margin achieved improved by a further 0.5% to 48.9% (2010: 48.4%) after an increase of 2.3% in the prior year. Operatingprofit (before exceptional items) was £5.2 million (2010: £3.0 million). The Board remains confident that there is a significant opportunity to grow operating margin in this Fascia through better stock management, own brand development and disciplined store rollout although this will be challenging in 2011 as a result of VAT, cotton and other fibre price increases and changes in brand distribution policy.

The Scotts Fascia stores sell branded fashion to older more affluent males and there were 37 stores at the year end, largely in the North and the Midlands. Total revenue in the year was £31.7 million (2010: £31.8 million) which was flat organically. However, the balance of trading towards full price full margin improved significantly driving an increase in the gross margin achieved to 49.5% (2010: 47.4%). This has led to an improved operating result with operating profit (before exceptional items) of £1.2 million (2010: £0.3 million).

Distribution

The Distribution businesses delivered a small operating profit of £0.2 million (2010: loss of £0.1 million) with a profit from Canterbury offset by ongoing investment to build Getthelabel.com within Topgrade, and by losses incurred in Kooga's quietest trading period of the year, much of which fell prior to its acquisition last year.

Canterbury delivered an operating profit of £1.1 million (2010: £0.1 million) on total revenues of £48.3 million (2010: £15.4 million) with a strong performance in both Australia and New Zealand where the brand was more sheltered from the events that led to the administration of the former UK based Canterbury business in 2009. The brand is still rebuilding its global network and it is hoped that longer term gains will come from the new licences in South Africa and Argentina, and the launch of a UK based business (in which we are the 75% majority shareholder) focusing on developing a more fashion based product offer to leverage the brand's image and credibility. Canterbury will be providing the kit for 4 teams at the forthcoming Rugby World Cup and the Board are confident that this global exposure will enhance the reputation and penetration of the Brand.

The Getthelabel.com online and catalogue business within Topgrade has now been trading for over a year. Its sales progress is encouraging and on schedule but the marketing and other investment required to achieve this means that we believe it could take a further two years before it has sufficient critical mass to deliver profits to the Group. This is not unusual in such businesses and we remain optimistic about the long term profitability of this venture. As a consequence of this, sales rose to £26.6 million (2010: £19.7 million) but losses rose to £0.8 million (2010: £0.4 million) in the year. This was in line with our expectations and we subsequently increased our stake in Topgrade from 51% to 80% during the year at a cost of £1.2 million.

Kooga Rugby went through a difficult period under its previous ownership and a lot of effort has been focused on improving control over the commerciality of the sponsorship properties and the profitability of product ranges and accounts. An operating loss of £0.3 million was recorded for the year (2010: profit of £0.2 million for the post-acquisition period) on sales of £6.5 million (2010: £5.0 million). We have strengthened the management team which we believe will lead to improvements in operating performance in due course.

Nicholas Deakins recorded a profit of £0.2 million (2010: £0.0 million) on turnover of £3.4 million (2010: £2.5 million) in the year.

Joint Venture

Focus Brands Limited, is involved in the design, sourcing and distribution of footwear and apparel both for own brand and under license brands for both group and external customers. Our share of operating results for the year was an operating profit before exceptional items and after tax of £1.5 million (2010: £0.5 million).

The exceptional items in the current year relate to unrealised gains on foreign exchange contracts and the reversal of the impairment of the investment held by Focus Brands Limited in Focus Group Holdings Limited, following repayment of original purchase consideration by the vendors of Focus Group Holdings Limited. The exceptional items in the prior year relate entirely to unrealised losses on foreign exchange contracts.

After the year end we increased our holding in this business to 80% at an initial cost of £1.0 million with potential further deferred consideration of £250,000 depending on performance. The performance of this business will be included in the Distribution segment in future.

Group Performance

Revenue

Total revenue increased by 14.8% in the year to £883.7 million (2010: £769.8 million) principally as a result of three factors: the Group's positive like for like sales performance of 3.1%, a net increase of 15 stores and £41.5 million of sales from the pre acquisition period of the Chausport, Canterbury and Kooga businesses.

Gross margin

Gross margin achieved increased in all segments. However, an increase in the participation of the lower margin distribution businesses within the Group's overall performance from 5.4% to 9.5% means that the growth in overall Group gross margin was limited to 0.2%.

Operating profits

Operating profit (before exceptional items) increased by £12.6 million to £79.9 million (2010: £67.3 million), a 19% increase on last year which follows a 24% rise in the previous year. Group operating margin (before exceptional items) has therefore increased by a further 0.3% to 9.0% (2010: 8.7%).

Following a decrease in the exceptional items to £4.3 million (2010: £5.0 million), Group operating profit rose from £62.3 million to £75.6 million.

The exceptional items (excluding share of exceptional items in joint venture) comprise:

The impairment of investment property relates to a writedown in the valuation of the St Albans warehouse occupied by Focus.

The loss on disposal includes both closed stores and assets written off in refurbished stores.

The charge for onerous lease provisions includes £1.1 million for non-trading stores and £0.7 million for trading stores.

Working capital and financing

As a consequence of having net cash throughout the year, the Group has net financing income of £0.2 million compared to net financing costs in the prior year of £0.4 million.

Year end net cash of £86.1 million represented a £25.6 million improvement on the position at January 2010 (£60.5 million).

Net capital expenditure including disposal costs and premia received increased in the year to £32.4 million (2010: £23.0 million) with capital expenditure excluding disposal costs increasing by £10.1 million to £33.0 million (2010: £22.9 million). This increase was focused on the core Sports Fascias where the spend increased by £10.7 million to £25.6 million which included an additional £3.9 million in the French business combined with £3.9 million of spend connected with the new 866,250 sq ft warehouse (616,250 sq ft footprint) at Kingsway, Rochdale. The Board anticipate that approximately £15 million will be incurred in the year to 28 January 2012 on fitting out of the warehouse. The demonstrable success of investing in the store portfolio means that we anticipate maintaining spend on the stores at the current level.

Spend in the Fashion fascias decreased slightly by £0.7 million to £6.7 million. This decrease does not mean that the Group is reducing its investment in the Fashion fascias and is more a function of availability of appropriate property and the timing of the projects.

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

Store Portfolio

We have made a further significant investment in the store portfolio during the year with expenditure on both new stores and refurbishments of existing space. We have also continued to rationalise our store portfolio wherever possible but, with the current economic climate impacting heavily on retail property occupancy levels, it remains very difficult to dispose of underperforming and/or duplicate stores.

There was a net increase of 6 stores in the UK & Ireland JD & Size? portfolios with 21 new stores offset by 15 closures. Our overall presence has increased in France by 1 store with 7 new stores (including 2 JD stores in Paris and Lyon) offset by the closure of 6 smaller Chausport stores. In addition, one Chausport store has been converted to the JD 'King of Trainers' format in Lille and the success of that trial means that we will convert a further 2 Chausport stores (in Angers and Amiens) to this format in the current period.

There was a net addition of 9 stores in the Bank fascia with 13 store openings offset by the closure of 4 stores. A loss making duplicate Scotts store in Chester was also closed in the period.

We have refurbished a total of 29 stores in the year (including 3 stores where space has been transferred between fascias). This means that over the last four years we have opened a total of 108 stores and refurbished a further 123 stores.

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

Sports Fascias

(1) One JD store (Cardiff) was transferred to Bank in the period offset by the transfer of one store from Bank to JD (Sutton Coldfield). One former Chausport store (Lille) was converted into a JD store.

Fashion Fascias

Dividends and Earnings per Share

The Board proposes paying a final dividend of 19.20p (2010: 14.70p) bringing the total dividend payable for the year to 23.00p (2010: 18.00p) per ordinary share. The proposed final dividend will be paid on 1 August 2011 to all shareholders on the register at 6 May 2011. The final dividend has been increased by 31% with total dividends payable for the year increased by 28%. This follows a 50% increase in the full year dividend in the prior year.

The adjusted earnings per ordinary share before exceptional items were 116.86p (2010: 93.64p).

The basic earnings per ordinary share were 114.84p (2010: 88.16p).

Employees

As ever, after another record year, it is right to give credit and thanks to all our employees around the world for delivering such exceptional results. We remain committed to continuing to develop their skills and prospects through our success, training and quality of operation.

Current Trading and Outlook

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. Specifically, the increase in VAT for the year to 28 January 2012 means that the same level of gross takings will produce a contribution of approximately £16 million less than the previous year. 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. 

Trading for the early part of the current financial year has been difficult to gauge when Easter falls three weeks later than last year. For the 8 weeks to 26 March 2011 gross like for like sales (including e-commerce) were +0.4% whilst net sales have declined 1.2% (Sports Fascias -1.4%, Fashion Fascias +0.0%). The decline in net sales and the resulting reduced margin are directly as a result of the fiscal changes referred to above.

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.

On the positive side the business delivers strong operating ratios and high levels of free cash generation. It has a robust balance sheet with £86.1 million net cash balances at the year end which leaves the Group well positioned to extend the retail opportunities which may arise and to continue to pursue a progressive dividend policy.

Management remain highly focused on all avenues of revenue growth, margin protection and cost control available to us to endeavour to deliver the optimum outturn, minimise the impact of the factors above and, with a strong balance sheet and dominant market position in our core business, we expect to be able to deliver operational and financial progress for the Group over the long term. Opportunities for profit growth overseas and development of our differentiated and own brand proposition, combined with prospects for growth in our Distribution business, all help to reduce the current threats to long term Group profitability and give us the opportunity to maintain positive long term momentum in our business.

A further update will be made in our Interim Management Statement no later than 17 June 2011.

Peter Cowgill

Executive Chairman

13 April 2011

Consolidated Income Statement

For the 52 weeks ended 29 January 2011

Consolidated Statement of Comprehensive Income

For the 52 weeks ended 29 January 2011

Consolidated Statement of Financial Position

As at 29 January 2011

Consolidated Statement of Changes in Equity

For the 52 weeks ended 29 January 2011

Put options are held by the 49% non-controlling interest in Canterbury of New Zealand Limited and 25% non-controlling interest in Canterbury International (Australia) Pty Limited.

Consolidated Statement of Changes in Equity (continued)

For the 52 weeks ended 29 January 2011

Consolidated Statement of Cash Flows

For the 52 weeks ended 29 January 2011

Analysis of Net Cash

As at 29 January 2011

1. Prior period restatement

The comparative Group Consolidated Statement of Financial Position as at 30 January 2010 has been restated to reflect the completion in the period to 29 January 2011 of initial accounting in respect of the acquisition of Kooga Rugby Limited made in the period to 30 January 2010. Adjustments made to the provisional calculation of the fair value of assets and liabilities acquired, as reported at 30 January 2010, in the period to 29 January 2011, resulted in an increase to goodwill of £94,000. The impact of this adjustment on the net liabilities is shown in note 6. As the acquisition of Kooga Rugby Limited occurred in the year to 30 January 2010 this adjustment has no impact on the Consolidated Statement of Financial Position as at 31 January 2009 and so it has not been presented. 

2. 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. The Group's reportable segments under IFRS 8 are therefore as follows:

·; Sport retail - includes the results of the sport retail trading companies JD Sports Fashion Plc, John David Sports Fashion (Ireland) Limited, Chausport SA and Duffer of St George Limited

·; Fashion retail - includes the results of the fashion retail trading companies Bank Fashion Limited and RD Scott Limited

·; Distribution businesses - includes the results of the distribution companies Topgrade Sportswear Limited, Nicholas Deakins Limited, Canterbury Limited (including global subsidiary companies), Kooga Rugby Limited and Nanny State Limited

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 retail' 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 products and customers is not appropriate.

Intersegment transactions are undertaken in the ordinary course of business on arms length terms.

The Board consider that certain items are cross divisional in nature and cannot be allocated between the segments on a meaningful basis. The share of results of joint venture is presented as unallocated in the following tables, as this entity has trading relationships with companies in all of the three segments. An asset of £3,458,000 (2010: £635,000) for the equity accounted investment in joint venture is included within the unallocated segment. Net funding costs and taxation are treated as unallocated reflecting the nature of the Group's syndicated borrowing facilities and its tax group. A deferred tax asset of £125,000 (2010: liability of £748,000) and an income tax liability of £12,370,000 (2010: £10,789,000) 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 retail) 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 29 January 2011 is shown below:

The comparative segmental results for the 52 weeks to 30 January 2010 are as follows: