Frasers' first-half revenue increased 12.7% on last year, to £2.6bn, which was largely due to acquisitions. Ignoring the impact of acquisitions, the group's revenue increased 3.9% year-on-year.
Profit before tax was up £74.7m to £267.1m, representing almost a 39% increase on the same period last year. This reflects revenue growth in all business divisions, "continually improving product choice in the core UK business", and FLANNELS growth through store roll out and online performance. These developments helped improve margins.
The group's mindful of the uncertain economic environment, but remains confident in their guidance for full-year underlying profit before tax of £450-500m.
Net debt increased marginally over the period, up by £8m to £499.1. Due to recent acquisitions, there was a free cash outflow of £5.4m in the first half of the year, significantly lower than last year when there was a £384.5m inflow.
The group pointed out its belief that the recent acquisition of Gieves & Hawkes has unlocked new capabilities and customer bases for the group.
No interim dividend has been announced.
The shares were largely flat following the announcement.
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Our view
Frasers' growth in revenues during the first half of this year is largely down to its recent acquisitions of other brands. These bumper revenues made their way down to the bottom line meaning that at the halfway point, the group has made good progress towards its guidance for full-year underlying profit of £450m-£500m.
The group's so called "elevation strategy" calls for new freehold flagship stores, displaying products in a more flattering, and digitally integrated, environment. That should allow the group to improve its relationship with key brands like Nike and Adidas, securing the newest products. Early signs from a couple of recently built flagship stores look promising, but as yet they don't contribute enough to group performance to move the dial. New flagship stores have been announced for Leeds and Manchester, but lots more still need upgrading if the format is going to contribute more meaningfully.
On top of the execution risk that comes with a move of this magnitude, Frasers is up against a very challenging backdrop. The structural decline in bricks-and-mortar shopping, is a force to be reckoned with.
The decision to take on extra high-street names including House of Fraser, GAME and Jack Wills only makes Frasers' exposure to the struggling sector more acute. Department stores in particular are facing the brunt of the issues - particularly unsavoury lease agreements and falling footfall.
All-said, the group's relying on a resurgence in high street activity for its multi-brand high-street powerhouse plan to pay off. The addition of Missguided and I Saw it First shows intent on the digital side. It's hoped that these acquisitions will expand the group's online presence and we think it offers some protection against decreased footfall to physical stores too.
The cost-of-living crisis is another concern. Frasers has some protection in the form of low-cost Sports Direct and it's also pushing into Luxury with its FLANNELS and Gieves & Hawkes acquisitions - pockets of retail that should be relatively insulated. However, we're mindful that we haven't see the full impact on consumer sentiment and with inflation still climbing it's a key risk to the group's forecast.
Despite being on-track to hit its lofty earnings growth targets, markets aren't valuing these earnings as highly as they were last year. The group now trades reasonably below its longer-term price to earnings ratio, which looks more appropriate.
Frasers key facts
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