Dave Forsey Chief Executive 19 July 2012 - Sports Direct International

22 / THE BUSINESS REVIEW
Chief Executive’s Report
uk sports retail
UK Sports Retail revenue growth continues to be primarily driven by our retail
and logistics skills – providing the widest choice of the best products at the best
prices with universal availability.
52 week UK Sports Retail sales were up 7.9% to £1,342m (2011: £1,245m), an
excellent performance against a World Cup comparative year.
Sales in the second half of the Year were up 11.2% to £667.7m
(2011 H2: £600.2m). Gross margins for the second half of the
Year worsened slightly to 39.7% (2011 H2: 40.2%) reflecting our
investment in margin and our focus on contribution (balancing
revenues and gross margin). Gross margin for the year decreased
by 90 basis points to 41.0% (2011: 41.9%).
Online revenue has increased by 81.8% from £95.7m to £174.0m
in the Year and represented 11.6% of total Sports Retail sales
(2011: 7.0%). We remain focused on developing this revenue
stream further. Order fulfilment and information technology solutions
are developed in-house with full back-up support from our National
Distribution Centre resources in Shirebrook, Derbyshire.
The website has benefited from the increased recognition of
the online brand with 351 of UK store fascias now branded
SPORTSDIRECT.com.
UK Sports Retail 52 week like-for-like gross contribution increased
by 0.7%, marking the third consecutive year of growth in this KPI
and an excellent performance against the World Cup comparative
(2011: 6.6% / 2010: 3.4%). UK Sports Retail like-for-like
contribution is defined as the percentage change in contribution in
the successive 12 month period, adjusted to remove the impact of
53 week year. A like-for-like store is one that has been trading for
the full 12 months in both periods and has not been affected by
a significant change, such as a major refit. The number of stores
in this calculation has remained at 290. This KPI does not include
online sales.
Operating costs decreased by 1.1% to £344.5m (2011: £348.3m).
Store wages were flat and as a percentage of sales remained at
8.6% (2011: 8.6%) which demonstrates the continued progress in
cost control. Sports Retail premises costs fell by 2.9% as a result
of the continuous process of relocations and renegotiations. Other
operating costs were up 10.3% to £117m (2011: £106m) which is
due to increased warehouse and storage costs. The significant part
of the increase is due to the expansion of the Shirebrook National
Distribution Centre and eCommerce growth. The costs were
reduced by a partial release of the onerous lease provision of £6m
due to unwinding of discount and the closure of stores.
Underlying EBITDA for UK Sports Retail was £207.7m (2011:
£175.5m), an increase of 18.4%. This increase was driven by a
£28.9m increase in gross profit (including wholesale) due to the
growth in online sales and the £3.8m decrease in operating costs.
The Group’s retail businesses performed strongly in a continuingly
difficult economic environment. Our retail model, offering
outstanding value to our customers, proved as resilient as we
expected it to be, both in the UK and internationally. We believe
that this business model provides flexibility and control that enables
high speed of execution. Throughout the Year, we continued to
focus on our fundamental approach of offering the customer the
most comprehensive product range and the best availability while
reducing our costs wherever possible.
The Nike Training Academy and our state-of-the-art National
Training Facility in Shirebrook have been busy providing specialist
training environments in Footwear, Running, Football, Women’s
Sportswear and SKUs (Sports Knowledge Underground).
As at 29 April 2012, 252 employees had progressed to
Nike Graduate level with 64 undertaking post-graduate training.
In addition to Nike, we work closely with adidas and Puma to
support in-store initiatives.
Access to the National Training Facility has now been expanded
to improve other areas of the business. It has enabled the
successful integration of USC into our operational systems, with
40 USC managers attending residential programmes. International
Retail teams from France, Portugal, Holland, Belgium, Iceland
and Hungary have attended training programmes to ensure
standardised service delivery across our operations.
The Group continues to invest in infrastructure in Shirebrook and
our exciting expansion plans for our National Distribution Centre
are on target to be completed by Autumn 2012, which will more
than treble the size of our facilities to over two million sq. ft. We
have completed Phase 2, the 400 thousand sq. ft extension to our
existing Distribution Centre. Plans are in place for the remaining
development, Phase 3, a one million sq. ft distribution centre solely
for our online offering.
We have continued to invest in Group marketing, including TV and
press campaigns, during key sales periods and promotions. In the
year we produced two million catalogues which were 50% bigger
than last year.
Relationships with our major third-party brand suppliers remain
strong. Nike Group, adidas Group and Puma all have their own
offices in our Shirebrook Head Office which enables us to work very
closely with them on a day-to-day basis.
We continue to build on our store-in-store concepts. The Soccer
Scene @ the Bootroom concept has completed its roll out
throughout our core stores while the SheRunsHeRuns concept
continues to be developed further, and the first ‘Fightzone’ has
opened in our key Lillywhites store.
Our store portfolio remains constantly under review with each
store’s performance and ways of maximising performance being
regularly examined. As a result, we have closed 78 stores since
2008 as our portfolio continues to evolve. We increased our period
end square footage to c.3.9m sq. ft (2011: c.3.8m). During the year
we refurbished 21 stores and relocated eight stores, constantly
improving the store appearance and providing a fresh and exciting
retail environment. In addition, we have upgraded our Carnaby
Street store to provide a flagship Soccer Scene experience in
Central London.