JD Sports says its businesses benefited from the Covid-19 stimulus spending in the US. Image courtesy of JD Sports
JD Sports Group is investing in warehouses to serve shoppers buying online in both the UK and the EU, as it continues to deal with challenges from Covid-19 to Brexit that continue to hit the supply chain. At the same time, the retail group has reported record sales and profits as its business recovered from the Covid-19 pandemic and benefited from last year’s acquisitions – particularly in the US market where the retailer says it has benefited from the effect of the Covid-19 fiscal stimulus.
Rethinking logistics post-Brexit
JD Sports Fashion is currently taking leases on a 515k sq ft site in Derby to process its UK online orders, and a 620k sq ft site in the Netherlands to process stock for its Western Europe shops and online orders. The Derby site is expected to go live by Autumn 2022 and to be fully up and running in early 2023, at an excepted cost of £70m, while the Dutch site will follow a year later, costing an expected £100m.
The business says its existing 80,000 sq ft site in Belgium is helping it to reduce its exposure to “the adverse consequences of Brexit” with the loss of tariff-free frictionless trading with Europe, and it has added temporary capacity at a 115k site in Lille to process online orders for European markets. The expansion of EU warehousing comes as JD Sports builds enough capacity to process “substantially all of the volume required for our stores and online order in Western Europe” in order to avoid the delays and costs of taking goods from the UK to the EU.
Currently, JD Sports says it is paying “some duties on the transfer of goods from the UK into EU countries” and that the volume of administration has also risen. “Whilst our operational systems have been configured to sort stocks as required by the Customs Authorities and to product the necessary documentation in the right format, this does not guarantee that goods flow freely into the EU, with an unexpectedly high proportion of trailers stopped at the border for detailed manual checking,” it says in today’s half-year statement. “This can add several days on to delivery timelines but, until a particular trailer is pulled for inspection, we do not know which specific deliveries will be impacted.”
The figures come as new analysis of HMRC data suggests that UK businesses have spent an extra £600m on customs duties since January.
Peter Cowgill, executive chairman of JD Sports Fashion, says: “The group continues to demonstrate outstanding resilience in the face of numerous challenges arising from the continued prevalence of the Covid-19 pandemic in many countries, widespread strain on international logistics and other supply chain challenges, materially lower level of footfall into stores in many countries after reopening and the ongoing administrative and cost consequences resulting from the loss of tariff free frictionless trade with the European Union. Given these challenges the record result that the group has delivered in the first half with a profit before tax and exceptional items of £439.5m (2020: 61.9m, 2019 £158.6m) is extremely encouraging.”
Record profits following acquisitions
The update came as JD Sports today reported revenue of £3.9bn in the six months to July 31, up from £2.5bn a year earlier. Pre-tax profits before exceptional items reached a record £439.5m. At the bottom-line, pre-tax profits came in at £364.6m after one off costs of £74.9m.
The core JD business in the UK and Republic of Ireland saw pre-tax profits before one-off costs rise to £170.8m from £52m in 2020, and £114.9m in 2019, while its US businesses – including recently acquired Shoe Palace and DLTR – reported profits before tax and exceptionals of £245m, up from £73.4m in 2020 and £35.7m in 2019. In the full year, JD Sports now expects to report top-line pre-tax profits of £750m.
Cowgill adds: “Ultimately, the group is at the pinnacle of the global sports fashion industry with consumers instinctively knowing that our retail propositions focus on their fashion desires and aspirations in both footwear and apparel, with an agile multichannel ecosystem delivering the highest standards of retail execution and consumer experience. This is respected by the international brands who regularly call JD out as a premier global strategic partner.
“We remain absolutely confident that our inherent strengths in retail dynamics and operations provide us with a robust platform to make further progress.”