Frasers Group sales, profits boosted by acquisitions

The FTSE 100 retail conglomerate said excluding acquisitions, disposals and on a currency-neutral basis, revenue was ahead 3.9% year-on-year in the 26 weeks ended 23 October.

UK sports retail revenue rose 11.6%, largely due to the acquisition of Studio Retail on 24 February.

Excluding acquisitions, UK sports retail revenue decreased 3.1%, which the board put down to a reduction at Game UK and the “very strong reopening” of stores after the last lockdown in March 2021.

Premium lifestyle revenue expanded 24.7%, largely due to new Flannels stores and continued growth online, while excluding acquisitions, revenue was up 22.2%.

International retail revenue grew 5.8%, which was put down to the acquisition of Sportmaster on 16 May and an increase in the Malaysia business, offset by the reduction in revenue following the disposal of the US retail businesses on 25 May.

Excluding acquisitions, disposals and on a currency-neutral basis, international revenue increased 9.2% after increases in the Malaysia business, due to the prior period being impacted by Covid-19.

The group’s gross margin decreased to 42% from 44.7%, in line with guidance, which reflected mix effects from the acquisition of Studio Retail, the disposal of the US retail businesses and House of Fraser store closures, a strong prior year comparative of full-price trading, cost-of-goods inflation, and a maintained inventory provision percentage in the current period.

Reported profit before tax rose 53% to £284.6m, reflecting continually-improving product choice in the core UK business, Flannels growth through store roll out and online, and profit on the disposal of assets, non-recurring profit before tax in the prior period from the disposed of the US retail businesses, an increased inventory provision amount, and the prior period benefitting from business rates relief.

Adjusted profit before tax expanded by 38.8% to £267.1m, and as a percentage of revenue, it rose to 10.1% from 8.2%.

Excluding acquisitions, disposals and on a currency neutral basis, adjusted profit before tax was up 53.8%.

Cash inflow from operating activities before working capital decreased to £389.9m, from £454.1m, largely due to increased operating costs, new acquisitions, and the business rates relief in the prior period.

Net assets increased to £1.38bn, from £1.32bn on 24 April, which Frasers said was due to the increased profitability of the group, offset by “significant” share buybacks.

Reported basic earnings per share grew 63.5% to 46.1p, and adjusted basic earnings per share were 47.9% higher at 44.8p.

Reported profit after tax was £219.6m, which was up 52.8% from £143.7m.

Looking ahead, Frasers said that while the macroeconomic environment was “clearly challenging” and the backdrop for the coming year was “hard to predict with any certainty”, it had strong strategic and trading momentum and remained confident in its guidance for adjusted profit before tax of between £450m to £500m for the current financial year.

“Our relationships with our brand partners are stronger than ever and consequently, we can now offer our consumers an even wider choice of brands and even better choices of product,” said non-executive chair David Daly.

“We have a clear vision to build the planet's most admired and compelling brand ecosystem.

“Over the past six months, our brand relationships have continued to go from strength to strength, and today we partner with 19 of the 20 hottest brands in the world as ranked by the Lyst index.”

Daly said Frasers would continue to elevate its stores and business in 2023, both organically and through disciplined acquisitions.

“A new Flannels flagship store is planned for Leeds, and a Sports Direct flagship store in Manchester.

“The Flannels store roll out strategy to offer our consumers a luxury retail experience in key locations around the country also continues with approximately six stores to open in 2023.

“With the support of our brand partners, our European expansion strategy will continue with a number of opportunities currently being assessed.”

At 0959 GMT, shares in Frasers Group were down 6.48% at 837p.

Reporting by Josh White for Sharecast.com.