16th Jul 2015 13:26
LONDON (Alliance News) - Sports Direct International PLC on Thursday reported growth in profit in its recently-ended financial year, boosted by a rise in revenue as it extends its portfolio across the UK and Europe.
However, shares in the sporting goods retailer fell following the announcement which also revealed that it has lowered its adjusted underlying earnings before interest, tax, depreciation and amortisation target to GBP420 million from GBP480 million for the financial year 2016. It said that, as planned acquisitions in the last financial year did not fully materialise, the original Ebitda target is now considered to be "unreasonably challenging". Adjusted underlying Ebitda was GBP383.2 million in financial 2015.
Shares in Sports Direct were trading up 0.2% at 736.00 pence Thursday afternoon, having initially dropped to 717.50p immediately following the pre-market announcement.
Sports Direct reported a 31% rise in pretax profit in the year ended April 26 to GBP313.4 million from GBP239.5 million the year before, as revenue grew 4.7% to GBP2.8 billion from GBP2.7 billion.
Sports Retail sales grew 5.5%, while gross margin for that sector increased by 170 basis points to 44.6%, which offset a 3% sales decline and 150 basis points drop in margin to 38.8% in the Premium Lifestyle division.
Sports Direct said revenue and profit growth was driven by continued expansion in the UK and across Europe. During the year, the company increased its UK store portfolio by 23 stores and added a further nine stores to its European store portfolio. It also established a fitness division in the year, comprising 27 gyms, including two combined gym and retail sites. A further two gyms are planned to open in St Helens and Dundee in the early autumn.
On an underlying basis, which excludes gains or losses resulting from foreign exchange movements and one-off costs, the company made a pretax profit of GBP300.3 million, beating the Numis forecast of GBP295 million and Exane BNP Paris estimate of GBP301 million.
"Trading since the period end has been in line with management expectations and will continue to be driven by improvements in product range and availability, optimisation of both our in-store and web offerings, the introduction of Click and Collect in the UK and further investment in our store portfolio," Chief Executive Dave Forsey said in a statement.
Sports Direct will not pay a dividend for the year. "The board remains of the opinion that it is in the best interests of the group and its shareholders to preserve financial flexibility, facilitating the pursuit of potential acquisitions and other growth opportunities. The payment of dividends remains under review in future years," the company said.
Sports Direct last paid a dividend in 2009, according to Morningstar.
Analysts were encouraged by Sports Direct's results. "We remain confident that Sports Direct can drive greater profitability from its leading UK position and replicate its successful model across the continent, supporting a substantial long-term growth opportunity," Numis said in a note.
Analysts at Liberum were equally positive, saying that the company's profit increase and sales growth demonstrate the pricing power which drives gross margin and the inherent operating leverage.
"Sports Direct has the strongest pricing power in sports retail sub-sector, in our view, which gives it the ability to invest in pricing if it needs to in order to drive demand," the broker said.
Liberum added that while acquisitions in Europe have been scarce, there is still scope to expand given the demand for sports products in the region. Lowering the 2016 Ebitda target was perhaps unsurprising, it said.
By Karolina Kaminska; [email protected] @KarolinaAllNews
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