Frasers Group released its half-year results for the period to the end of October (FY25 H1) on Thursday and said it made further strong progress in its elevation strategy.

But there were plenty of negative figures in the report, partly linked to investment and non-repeated gains of a year earlier, but also connected to the tough luxury market and other issues. Its luxury goals are likely to be achieved more slowly, it said.

Overall revenue fell 8.3% to £2.54 billion and adjusted profit before tax (APBT) fell 1.5% to £299.2 million. But this wasn’t a bad result given the non-recurrence of a £20 million gain on the disposal of its Missguided intellectual property in the same period last year and running costs associated with the rollout of Frasers Plus. 

Yet reported profit before tax was down 33.2% at £207.2 million, impacted by a decrease in foreign exchange gains and non-cash fair value movements on equity derivatives, “primarily relating to the material decline in the Hugo Boss share price”. The company is a major shareholder of that business.

Retail profit from trading was up 0.2% at £365.6 million, but retail revenue fell 8.4% to £2.456 billion. Continued sales growth from Sports Direct, “reflecting the ongoing success of the elevation strategy and strengthening brand relationships, was more than offset by planned declines in Game UK, Studio Retail, the companies acquired from JD Sports and SportMaster in Denmark as these previously unprofitable businesses were rightsized and put on a more sustainable footing”. The company said it was also affected by the “challenging luxury market”.

But the group gross margin increased to 43.4% from 43% “due to an improved mix effect, as the lower-margin businesses reduce as a proportion of total revenue and the higher-margin Sports Direct business increases its share”.

The UK Sports division accounted for 54% of total group revenue with revenue down 7.6% at £1.372 billon and gross profit down by £35.8 million. But the gross margin increased by 100 bps to 45.4% as the higher-margin Sports Direct business now makes up a greater proportion of this segment. Operating costs reduced by £44.3 million as the benefits of integrating and rightsizing the lower-margin businesses were realised. This contributed to an £8.5 million (3.4%) increase in the segment’s profit from trading.

Premium Lifestyle, which accounts for 18.6% of total group revenue, had a tougher time. Revenue fell 14.1% to £472.7 million as it continued to optimise its store portfolio in House of Fraser and the businesses acquired from JD Sports, reducing the number of stores from 66 a year ago to 37 now.

Segment profit from trading increased by £16.4 million, with a £38.5 million fall in gross profit, driven by the revenue decline and a 210bps reduction of the gross margin from 36.9% to 34.8% as inventory was cleared and due to continuing luxury market softness. But this was more than offset by a £54.9 million decrease in operating costs “as the benefits of integrating and rightsizing the premium businesses was realised”.

The company said it continues to “develop and invest in our unique luxury proposition, including the recent opening of flagships Flannels in Leeds and Frasers in Sheffield, and rightsizing the premium businesses such as House of Fraser and JD Sports acquisitions. 

“Our long-term ambitions for the luxury business remain unchanged, although it is likely that progress will remain subdued for the short to medium term in the face of a challenging market. However, we continue to view this as an opportunity for consolidation in order to further strengthen our position”.

International Retail, accounting for 24.1% of total group revenue, saw revenue falling 5.3% to £611.4 million as growth from the Sports Direct International business was more than offset by declines in revenue from Game Spain, and Sportmaster.

Segment profit from trading fell by £24 million. Gross profit fell by £9.7 million, although the gross margin increased by 60bps to 40.6% as the higher-margin Sports Direct International business grows as a proportion of the segment, while overhead costs increased by £14.3 million due to inflation and acquisition-related costs.

Financial Services is only 1.8% of total group revenue, but it said it sees “a great opportunity” for Frasers Plus, which “has made good early progress towards our long-term ambition of delivering £1 billion+ in sales, £600 million in credit balances, a greater than 15% yield, and over 2 million active Frasers Plus customers (excluding any third-party partnerships)”. The business added 272,000 new customers in FY25 H1 and ended the period with an active customer base of 377,000, at which point Frasers Plus accounted for 13.7% of UK online sales. 

It continues “to prioritise the growth of our new Frasers Plus credit offering and reduce the Studio Retail receivables book and as a result, revenue decreased by £11.6 million (20.2%) vs FY24 H1”.

Segment profit from trading fell £25.4 million, partially offset by a moderate decrease in the impairment charge and an increase in overhead costs arising from the dual running of Frasers Plus. H1 FY24 had also benefited from an £11.8 million gain in respect of exiting a legacy property lease.

As for acquisitions and investments, during H1 the group made further substantial strategic investments, particularly in Hugo Boss as it “continues to explore opportunities to expand commercial relationships and further develop the group’s ecosystem”.

It continues to explore opportunities for international expansion and has completed the acquisition of Twinsport in the Netherlands, invested in Australia/New Zealand group Accent, and invested in Maltese/North Africa retailer/Nike distributor Hudson. After period end, it announced the acquisition of Holdsport in South Africa/Namibia.

CEO Michael Murray called the half “another period of progress for the group, delivering on our objectives as the elevation strategy continues to take the business to the next level”.

But he downgraded the profit forecast, saying: “We are set to deliver another year of profitable growth but, given recent weaker consumer confidence leading up to and following the Budget, FY25 APBT is now expected to be in the range of £550m to £600m”.