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JD Sports Fashion fleshed out its plans for Blacks Leisure, the struggling outdoor clothing retailer it bought at the start of the year, as it reported preliminary results on Thursday.
The sports fashion retailer slimmed down the unprofitable chain by closing 81 lossmaking stores after buying it for £20m in a pre-pack administration deal in January, and has not ruled out further closures.
However, Peter Cowgill, executive chairman, stressed that the group was looking to turnround the remaining 215 Blacks outlets “in the majority of cases,” adding that the eventual size of the store portfolio would depend on their performance and the renegotiation of rents following the acquisition.
Decisions would be made on a “store-by-store basis,” he said.
The group beat analyst expectations with pre-tax profit of £75.96m before exceptionals in the 12 months to January 28, despite the inclusion of a £2.2m operating loss from the Blacks business in the three weeks it was included.
However, the Blacks acquisition weighed on profits when exceptional charges of £9.7m, the largest of which was £3.5m relating to restructuring costs, were included. Pre-tax profit including exceptionals fell 14.2 per cent to £67.4m compared with the same period the previous year on sales up 19.9 per cent to £1.06bn.
JD Sports said Blacks had been plagued by a “particularly severe” lack of stocks and warned the chain would also weigh on group earnings in the current financial year. It expects a “further charge” for restructuring costs in the current financial year and added that it would be early 2013 before the impact of savings made by trimming central costs at Blacks were felt.
The sports retailer reported positive results from its initial foray into the Spanish market following its acquisition of a majority stake in the Sprinter chain last June, which contributed an operating profit of £4.7m for the seven-month period.
The group wants the retailer to provide a platform for the JD brand in Spain, replicating its push into the French market which began after it acquired the Chausport brand in 2009.
Diluted earnings per share fell 16.2 per cent to 96.27p. The group proposed a dividend of 25.3p, up 10 per cent.
Shares in JD Sports closed down 1 per cent at 791p.
JD Sports’ younger shoppers are feeling the pinch but the group’s diversification into outdoor gear and clothing with the acquisition of Blacks and its increasing push into Europe shows it has an eye on broadening its horizons.
Shares trade on a forward p/e of 8.3 times according to Investec, the house broker, with Sports Direct on a consensus forward multiple of around 12.5 times.
With JD’s discount reflecting Sports Direct’s dominance in UK sports retailing, the shares look fairly priced but prospective investors may wish to wait to see how well the integration of Blacks proceeds, given the group has signalled it will take some time.