Mike Ashley’s Frasers Group defied retail gloom in its first half as younger shoppers more shielded from the cost of living crisis continued to spend, including at its fast-growing designer chain Flannels.
The group, which owns several chains including Sports Direct and House of Fraser, said younger people, which make up a large proportion of the group’s shoppers, were still prepared to spend on clothes as they were more protected from rising energy bills, mortgage rates and even food costs.
“Employment numbers are still high and more people are living at home with their parents for longer and spending more of their take-home pay on going out and clothes,” said Chris Wootton, Frasers’ finance director.
Frasers, which includes the leisurewear brand Jack Wills and also Evans Cycles, said pre-tax profits rose 53% to £284.6m in the six months to 23 October on sales that were up almost 13% to £2.6bn, driven by acquisitions and the expansion of the Flannels chain. Six more Flannels stores are planned next year.
Wootton said the group would buy more retailers in the UK and elsewhere in Europe in the coming months, as the pressure on smaller firms and brands prompts many to seek new funding.
“Expect more deals to happen,” he said, adding that the group was in talks with a number of potential targets. “There is a lot of opportunity out there and there is bound to be more going forward given the current macro circumstances.”
He said there was less available capital in the market and those businesses that had chased sales without concern for profitability were “in a pickle”.
“A lot of pure plays [online only retailers] have very much concentrated on top line whereas we have concentrated on profitability,” Wootton said.
Frasers, which has snapped up the online fast-fashion brands Missguided and I Saw it First as well as the online specialist Studio Retail, wants to add further sports, luxury and related brands to add to its large portfolio.
Despite higher profits, shares in the group fell 7% on Thursday morning, making Frasers the top faller on the FTSE 100, after it revealed that sales at its core sports division were down 3.1%, excluding acquisitions, although this was largely as a result of sliding sales at its the video games chain Game UK.
The group said it was confident of hitting profit targets for the year. “While the macroeconomic environment is clearly challenging and the backdrop for the coming year is hard to predict with any certainty, we have strong strategic and trading momentum behind us.”
Wootton said Frasers would continue to invest in high street retail as that mix “makes us strong” and its brand partners wanted the benefits of a mix of online and physical stores.
He said more House of Fraser branches were likely to close, after it closed nine of the department stores in the past year, taking the total to just 34, from 59 on acquisition in 2018. However, he said the plans were being reviewed in the light of welcome changes to the business rates system announced by the government last month.
Frasers said it planned to invest £600m on a new distribution centre and offices in Coventry, potentially laying the ground for a move from its current headquarters in Shirebrook, Derbyshire. Wootton said the lease on the Shirebrook complex would be up in 2034 but Frasers was “likely to be very different in 10 years” and it was not clear if the main operations would move.
He said work had not yet begun in Coventry where Frasers had yet to secure planning permission, but he added: “We can build from the ground up in Coventry, a fully automated operation with all the green credentials including a warehouse and campus with offices and a health centre, it is an amazing project.”