Mike Ashley’s Frasers Group defied the retail sluggishness in the first half as younger shoppers more protected from the cost-of-living crisis continued to spend, including at its fast-growing designer chain Flannels.
The group, which owns several channels including Sports Direct and House of Fraser, said young people, who make up a large proportion of the group’s shoppers, were still willing to spend on clothes as they were more protected against rising energy bills , mortgage rates and even food costs.
“The number of jobs is still high and more and more people are living longer at home with their parents and spending more of their take home pay on going out and clothing,” said Chris Wootton, chief financial officer of Frasers.
Frasers, which includes leisurewear brand Jack Wills and also Evans Cycles, said pre-tax profits rose 53% to £284.6million in the six months to October 23 on sales up nearly 13% to £2.6bn, driven by acquisitions and the expansion of the Flannels chain. Six more Flannels stores are planned for next year.
Wootton said the group will buy more retailers in the UK and elsewhere in Europe in the coming months as pressure on small businesses 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 are a lot of opportunities there and there are bound to be more in the future given the current macroeconomic circumstances.”
He said there was less capital available in the market and companies that had sought sales without worrying about profitability were “in trouble”.
“A lot of pure games [online only retailers] we focused a lot on revenue as we focused on profitability,” Wootton said.
Frasers, which has acquired online fast fashion brands Missguided and I Saw it First as well as online specialist Studio Retail, is keen to add other sports, luxury and related brands to its extensive portfolio.
Despite higher profits, the group’s shares fell 7% on Thursday morning, making Frasers the biggest loser in the FTSE 100, after it revealed that sales in its main sports division fell 3.1%, excluding acquisitions. , although this is largely due to the result. declining sales of its Game UK video game channel.
The group said it was confident of achieving its profit targets for the year. “Although the macroeconomic environment is clearly challenging and the backdrop for the year ahead is difficult to predict with certainty, we have strong strategic and commercial momentum behind us.”
Wootton said Frasers would continue to invest in retail because 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 nine of the department stores closed over the past year, bringing the total to just 34, from 59 when acquired in 2018. However, he said the plans were being reviewed in the light of welcome changes to the pricing system for businesses announced by the government last month.
Frasers said it plans to invest £600m in a new distribution center and offices in Coventry, potentially setting the stage for a move from its current headquarters in Shirebrook, Derbyshire. Wootton said the lease for the Shirebrook complex would be in effect in 2034, but that Frasers “will probably look very different in 10 years” and it was unclear whether core operations would move.
He said work had not yet started in Coventry where Frasers had not yet obtained planning permission, but he added: ‘We can build from scratch in Coventry, a fully automated operation with all the green credentials, including a warehouse and a campus with offices and a health center, it’s a great project.
