Frasers Group adjusted profit soars in "breakout year"

Frasers Group was in the news again on Thursday not because of which company it might or might not be buying (as is usually the case), but for the more mundane issue of its financial results.

Not that the results themselves were boring. The company reported numbers for the 52 weeks to the end of April and talked of “sustainable profitable growth”.

On the surface, there were a lot of negatives, but the previous year had benefited from a 53rd trading week, and adjusted profit before tax (or APBT, its favoured measure) increased in double digits.

The company’s shares rose strongly in early trading after the results were announced as it had good explanations for the declines and it’s clearly moving in the right direction.

As always with this company there was a lot to digest (after all, it has a massive, sprawling empire). So let’s look at the headline figures first.

Group revenue dipped by just under 1% to a whisker under £5.538 billion. Its UK Sports Retail division (that is, Sports Direct and other businesses) was down 3.3% at just shy of £2.861 billion. Meanwhile its Premium Lifestyle division (Flannels, Cruise, Van Mildert, Jack Wills, House of Fraser, Gieves & Hawkes and more) fell a smaller 1.2% to £1.204 billion.

But excluding the impact of the 53rd week in the previous year, revenue in both of these divisions increased slightly.

International retail managed to rise 3.3% even without the extra week being factored out of the equation, hitting just over £1.289 billion.

But retail revenue as a whole was down 1.3% at £5.354 billion. The firm’s other revenue includes property and financial services.

The retail gross margin rose to 41.8% from 41.5% and the group margin was up to 43.3% from 42.9%.

Its retail profit from trading dipped very slightly to £738.9 million and total profit from trading was down 8% at £835.6 million.

Operating profit fell 2.7% to £520.6 million and reported profit before tax plummeted more than 20% to £507 million. But the APBT results (adjusted profit, as mentioned), was actually up 13.1% at £544.8 million.

The company said it saw lower profits from the disposal of properties and subsidiaries (£28.5 million in the current period vs £113 million in prior year). And it recorded a £12.5 million loss in respect of the Matches acquisition (vs a £26.3 million gain on the disposal of Bob’s in prior year).

The dip in retail profit from trading came after a strong trading performance from Sports Direct (“reflecting the continuing success of the Elevation Strategy and strengthening brand relationships”), but this was was “broadly offset by expected declines in Game UK and Studio Retail, planned House of Fraser store closures, and a softer luxury market”. And of course, there was that extra week of trading a year ago that made the comparisons more difficult.

The reported profit before tax plunge also came as the group’s trading performance was offset by a decrease in foreign exchange gains, non-cash fair value movements on equity derivatives and the non-repeat of exceptional gains.

UK Sports accounts for 51.7% of total group revenue and while that revenue was down, gross profit and the gross margin both rose.

Premium Lifestyle accounts for 21.7% of total group revenue and the company said it’s well positioned for the future. Its “long-term ambitions for this business remain unchanged, although it is likely that progress will remain subdued for the short to medium term in the face of a softer market. However, we view this as an opportunity for continued consolidation in order to further strengthen our position”.

Clearly, the group plans to make more acquisitions and the latest rumours suggest that it’s interested in YNAP, which would radically boost its presence in luxury online retail.

The revenue dip from planned HoF closures and a weaker luxury market were partially offset by sales from the businesses acquired from JD Sports Fashion in H2 of FY23. And excluding the impact of the 53rd week a year ago, revenue increased by 0.7%.

International Retail at 23.3% of total group revenue grew as it was boosted by the Sports Direct International business, as well as the acquisition of the MySale business in Australia in mid FY23.

The company added that it’s seen “very encouraging early performance” of loyalty scheme Frasers Plus: “We see a great deal of potential for Frasers Plus as a new revenue stream and a key pillar of our brand ecosystem. We have a long-term ambition of £1 billion+ in sales, £600 million in balances delivering a greater than 15% yield with over 2 million active Frasers Plus customers — this is excluding any third-party partnerships”.

Upbeat CEO Michael Murray called it a “breakout year for building Frasers’ future growth. As well as delivering a strong trading performance, particularly from Sports Direct, we made significant progress with our Elevation Strategy. We expanded our retail ecosystem, establishing valuable partnerships with new brands. Our brand relationships have never been stronger, giving us invaluable support as we continue the international expansion of our business. We invested in group-wide operational efficiencies in warehouse automation and digital infrastructure, which we expect to yield a tangible impact as early as FY25. And we generated new growth opportunities with the rollout of Frasers Plus, including recently signing our first third party partner in THG”.

He added that the “Elevation Strategy is powering our strong financial performance, with strategic brand relationships giving us better access to product across the Frasers Group. As we move into FY25 and the Summer of Sport, we remain confident that our strategy will drive continued strong performance, and we expect significant synergies from both our automation programme and the integration of acquisitions”.

As a result, for FY25, it expects to achieve “another strong increase in APBT” in the range £575 million-£625 million.

That will be helped by its acquisitions and investments, of course. The group expects to complete on the purchase of Netherlands retailer Twinsport post-year-end, further supporting its growth ambitions in Europe. And it has launched a new joint venture in Indonesia to support its expansion plans in Southeast Asia.

And they are all those other acquisitions that might happen, some of which we’ve heard about and others that are just rumours or not yet even on the radar. Watch this space.