Over the last few weeks there has been a steady drip, drip, drip of bad news from UK retail with profit warnings from across the retail sector at a seven year high. High profile names including Toys ‘R Us, Debenhams (LON:DEB), Maplin, Mothercare (LON:MTC), Moss Bros (LON:MOSB), Carpetright (LON:CPRC), Kingfisher (LON:KGF), New Look, either going into administration or reporting difficulties, the list goes on with even high street mainstay John Lewis (LON:JLH) warning about falling sales.
It is therefore heartening to know that it’s not doom and gloom everywhere with both JD Sports (LON:JD) and Primark, owned by Associated British Foods (LON:ABF) posting some fairly decent updates today.
JD Sports
FY 2018 – at the end of last month UK sports retailer JD Sports announced it would be acquiring US sports shoe business Finish Line (NASDAQ:FINL) for £400m. If this was an indicator into how management viewed the outlook for the coming months then it was probably safe to assume that this week’s final full year numbers would come in at the higher end of expectations. Management had already guided up profit expectations in their post-Christmas update, for the second time in four months as both its European and UK businesses helped boost profits.
Today’s full year numbers fully justified that optimism with pre-tax profits rising 25% to over £300m, while revenue rose 33% to over £3bn helped by the company’s expansion program in Europe, where 56 new stores were opened, as well as 9 in Asia Pacific, including the first stores in Australia.
The company has proved itself adept at picking up struggling businesses, outdoor retailers Blacks and Milletts, being two cases in point in 2012 and 2013, and after some teething problems eventually integrating them into their business model and turning them around. Its outdoor division appears to have done well given the recent 'Beast from the East' cold weather blast, which is likely to have helped boost sales of cold weather clothes.
Online sales also showed a decent increase, rising by 30%.
As far as the US integration is concerned CEO Peter Cowgill expressed optimism that the acquisition would be value for money. He also said that any branding changes on the 556 US stores would be done on a gradual basis, starting initially with a few stores and going from there.
The markets appear to like the update with some strong buying, however the shares are still in the same broad range they’ve been in for the last 6 months, albeit nearer to the top end than the bottom.
Associated British Foods
H1 – it’s been a tough few months for UK retailers and Primark owner ABF has been one of the few winners in this space in recent years, with its cut price clothing cannibalising the competition as UK consumers continue to remain very price sensitive.
At its post-Christmas update the company posted record sales despite claiming that the warm weather in Europe at the end of last year held back its European numbers. This statement was repeated today, however management undermined their case a little by saying that freezing temperatures across northern Europe also hurt sales, with like for like sales falling 1.5%.
As excuses go this one takes the biscuit, blaming both warm weather and cold in equal measure, as if it is a surprise that in winter the weather tends to get cold, and does sometimes freeze.
UK sales on their own rose 3% at Primark, helped by increasing selling space with new stores in Charlton and Staines, and relocations in Oxford and Kingston, amongst others. European expansion also gathered pace with new premises in Germany, France and Portugal.
In any case the clothing business was still the best performer of the company’s three divisions, despite not having an on-line operation, as profits rose 6%, with the sugar business acting again as the chain around the ankle, with profits falling 25%, on an oversupplied market, due to EU sugar quotas being removed. Grocery profits also improved rising 5% as Thailand and Switzerland enjoyed an Ovaltine boost. In the UK Kingsmill and Allinson bread also sold well.
The problem for ABF has once again been in its sugar business with its retail and grocery businesses acting as a counterweight, and which has seen group profits coming slightly below expectations.
Nonetheless investors appear happy with the numbers, probably as a result of the fact that the company kept its outlook unchanged, and the fact that the shares are still down over 20% from their October peaks last year. Definitely a case of glass half full with the shares amongst today’s best performers.
One also wonders how well the company would do if it expanded its on-line portal where users can check availability into a fully deliverable solution. There is an argument that if it were to go fully deliverable the results would go through the roof. The problem with that scenario might well be to do with postage costs, given that on clothing, tops can be as little as £3 an item. It could be that the cheapness of the products is one reason why online is not considered viable, given the associated costs of storage and distribution.
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