JD Sports defended a £6 million agreement with former executive chairman Peter Cowgill as it warned inflation and supply chain disruption pose big risks for the business in the months to come.
Mr Cowgill was ousted in May after 18 years in charge because of disagreements over board structure and governance. On Wednesday the sportswear retailer revealed he would receive more than £6 million as an adviser to the company for three years and to prevent him working for rivals or poaching JD staff for two years.
“We wanted to take him off the pitch in terms of competitors, and he wanted to end things amicably after devoting so much of his life to JD,” said chairman Andrew Higginson.
“In the scheme of things it’s a relatively small sum of money for something very valuable ... you only have to look at WPP and Sir Martin Sorrell to see the damage that can be done when things end in an adversarial manner.”
Profits at JD Sports were at the top of its expectations in the first half. Mr Higginson said sales were up about 8 per cent in the first six weeks of the second half before the impact of recent acquisitions.
“Whilst the overall performance continues to be encouraging and the result for the half year was at the upper end of expectations ... it is inevitable that we remain cautious about trading through the remainder of the second half.”
He cited economic uncertainty, inflation and the potential for further disruption to the supply chain as major risks.
Pretax profit before exceptionals for the six months to July 31st was down 13 per cent to £383 million, but that was better than many analyst forecasts which averaged just below £380 million.
Profits in the US, which now account for around a third of the total, were down on last year. That was largely because federal government grants to help with the economic impact of the Covid-19 pandemic during 2021 were not repeated this year.
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There were also shortages of some lines of footwear. “There was a lockdown in Vietnam the second half of last year, which affected supplies in the first half of the current year,” said chief financial officer Neil Greenhalgh.
Sales in Europe, including the UK, recovered strongly after a weak first half last year because of lockdowns.
Shares in the group were down about 5 per cent at 117p in midday trade. RBC analyst Richard Chamberlain said the results were resilient but noted the sharp rise in inventory levels, which were 43 per cent higher than last year.
Mr Greenhalgh downplayed the rise. “The anomaly was last year — we’ve restocked the US back to normal levels in terms of weeks of cover, plus a bit to allow for our investment in new stores,” he said.
Many retailers have built up more stock earlier than usual this year, to try to forestall further supply chain disruption in the run-up to Christmas. But Mr Greenhalgh said the company was not worried about the prospect of having to discount surplus inventory later in the year.
“Our gross margin is unchanged, which tells you we’re not discounting”.
Kath Smith, who stepped up to run the company after Mr Cowgill’s sudden departure, will shortly resume her non-executive role and make way for Régis Schultz, who was named chief executive in August and formally joined the business earlier this month.
— Copyright The Financial Times Limited 2022
