Shares in retail group Frasers (FRAS) - formerly Sports Direct - vaulted 20% to 367p after it posted surprisingly strong results for the financial year to 26 April and predicted a sharp increase in operating profit this year.
Despite the impact of coronavirus and the closure of its stores, group revenue only fell 12.6% excluding acquisitions and currency movements. On a headline basis, sales increased 6.9% to £3.96 billion.
The core UK Sports Retail business reported sales of £2.2 billion, a drop of 14.6% excluding GAME Digital which it acquired in June 2019 but a rise of 0.7% on a headline basis.
Most impressive was the performance of the Premium Lifestyle business, which comprises Flannels, Cruise, van mildert, House of Fraser and the recently acquired Jack Wills and Sofa.com.
Sales excluding acquisitions rose 18.6%, while on a headline basis they increased 34.9% to £722 million. Moreover, gross margins expanded from 46.2% to 48.3% due to an improved product mix.
European revenues excluding acquisitions and currency movements fell 15.6%, but including GAME’s Spanish stores sales were up 16.3% to £698 million. The European business doesn’t include Fraser’s ‘strategic’ equity stake in German fashion firm Hugo Boss, which it announced in June.
Underlying earnings before interest, taxes, depreciation and amortisation (EBITDA) rose 50.2% to £302 million, although adjusting for acquisitions and currencies the figure was flat on the previous year.
As chairman David Daly reflected, the group has been thrown its fair share of challenges in the past year. ‘FY20 will likely be remembered as the most challenging year in the history of the company.
'The political uncertainty around Brexit had been with us for far too long and, just as we were feeling more confident of getting some clarity and stability, the Covid-19 crisis arrived which will continue to have an impact on the economy and our business beyond FY20’.
On top of this, the firm was hit with a Belgian tax demand for €674 million in July last year, which in the event turned out to be hugely overstated and was settled for ‘an immaterial amount’.
Ebullient as ever, chief executive Mike Ashley (pictured) remains focused on his ‘Elevation’ strategy to bring the group more up-market, with plans to spend more than £100 million this year on its digital strategy centred on the Flannels concept.
Ashley also predicted a jump of between 10% and 30% in underlying EBITDA this financial year thanks to the group’s digital transformation, the reopening of its stores and continuing strong web performance.
