Mike Ashley’s Frasers Group, owner of Sports Direct and Jack Wills, plans more acquisitions and store openings after sales rose by nearly a third and profits rebounded after lockdowns ended main streets.
Pre-tax profits for the company, which also owns House of Fraser, Flannels, Game and Evans Cycles, and recently bought online specialists Missguided and Studio Retail, rose to £366 million as of April 24, from just 8 £.5 million the previous year. , with sales rising nearly 31% to £4.7 billion. Investors reacted positively, with the company’s share price closing up 25% at 942p.
Frasers’ new chief executive, Michael Murray, said shoppers had defied expectations that sales would have moved permanently online during the pandemic. The rise in group profits came despite booking £227million in property write-downs as store values fell in light of fears over the future of the industry.
Murray said: “We have definitely seen a return to the high street. People come to discover a diverse mix of brands.
He said shoppers risked seeing prices rise in stores as brands reacted to cost increases, while the price of fitting out stores had become more expensive due to rising construction costs.
However, the group has published a bullish profit target, saying it believes it can earn between £450m and £500m before tax over the coming year, which would represent an increase of at least 23%.
Murray said his strategy had gained “significant momentum” despite cost inflation and supply chain challenges and the group’s exit from its failed investment in Bob’s Stores and Eastern Mountain Sports in the United States after the end of the year.
“We are confident of a banner year and that has stirred up headwinds,” he said.
The group said it plans to open its first Flannels stores in Ireland – in Dublin, Blanchardstown and Cork – and a Sports Direct flagship in Manchester in the coming year.
Murray said that in the longer term the group aims to nearly double the size of the Flannels chain to 100 stores in the UK and Ireland. He also wants to open stores in continental European cities.
The group will aim to have fewer but larger Sports Direct outlets, having closed a network of 12 during the year, which could provide a “better experience” for shoppers.
House of Fraser will continue to contract, however. Four other department stores closed during the year, taking the total to 39 in April, from 59 when the chain was first acquired by the Ashley Group in 2018.
Murray said he only wants 20 to 30 House of Fraser outlets in the longer term, which would include new stores and the closure of others. House of Frasers in Cwmbran, Wales, and Epsom in Surrey have closed since the end of the year and Huddersfield will close next month.
“Some of the stores in smaller locations are too big, the prices are very high or the sales in the store are not [sufficiently] productive to invest in the store or we cannot come to a reasonable compromise on rents,” Murray said.
The company said in a statement: ‘We have consistently criticized the archaic corporate rate regime and the need for reform. Unfortunately, these issues remain unresolved and are now coupled with skyrocketing construction and store fit-out costs, creating an extremely challenging environment for opening and operating physical stores. While others have been hesitant to engage in physical retail during these difficult times, we are confident that consumers will still flock to stores for great brands and experiences.
Laura Hoy, equity analyst at Hargreaves Lansdown, said: “It is difficult to determine to what extent the positive results came from easier comparisons, as the group lapped up extraordinary weakness due to Covid lockdowns. But there were promising signs, including improvements in efficiency and expansion of higher-margin parts of the business.
“Only time will tell if Murray’s optimism is grounded in reality – we wonder if [linked online and store] experiences are enough to attract shoppers to stores. And Frasers’ stable of brands are likely to be squeezed by the cost of living crisis.
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