DW Sports hits the ground running
DW SPORTS Fitness, the business set up by Dave Whelan in March last year to buy ailing sportswear retailer JJB Sports’ leisure division, made a pre-tax profit of £4.8m on sales of £132.7m in its first full year to March 28, 2010.
The company’s finance director, Andrew Gee, told TheBusinessDesk.com that directors were “pleased” with a performance which saw it achieve earnings before interest, tax, depreciation and amortisation (ebitda) of £9.7m as this was a “new company created out of thin air”.
“It was a shell company created on March 13, 2009, and we were trading by March 25,” he said.
“We knew the sports retail market but we had no infrastructure and we were frantically trying to put the systems in place. At the same time, we had to pull ourselves away from the JJB business.”
Mr Gee told TheBusinessDesk.com that it expects to improve profits in its current financial year as it develops its own network of suppliers and improves brand awareness.
He said that the precarious state of JJB at the time of the deal meant that DW Sports had to structure its £70m buyout so that payments were made gradually as leases for the 53 health clubs with 50 adjoining retail outlets came into its control.
He added that the the new company’s earning capacity within its first six months was impacted by JJB’s financial position – it was responsible for supplying DW Sports Fitness with stock but had already reached credit limits with many of its suppliers.
DW Sports Fitness has since developed its own distribution centre, supplier network, website and other infrastructure needed to help grow the business and would this year concentrate on building its brand.
Since the acquisition, it has opened a further six health clubs (five of which have retail stores attached) and added one standalone retail store, as well as retrofitting a small retail store within an existing gym building. As a result, it now operates from 59 gyms and 57 shops.
Mr Gee said that DW Sports plans to open a further three sites within the next few months – either by acquiring greenfield sites or refitting units with around 15-20,000 sq ft of space within existing retail units. The company prefers (where possible) to open combined gyms and retail outlets as it is a more efficient use of space and customers often cross-fertilise between both parts of the business.
“Running two businesses off one retail footprint works,” he said. “The aim is to push forwards on that basis but at the same time if there are opportunities in the market or something that comes up for sale like Total Fitness we will look at it.”
The accounts also show that Mr Whelan and his family have pumped in around £76m in loans to the firm, accompanied by a £20m loan from Barclays. Mr Gee said that the money provided by Whelan was a “long-term investment”.
“At some stage if the right offer came in I’m sure he would sell – he’s done it before – but we’re very much concentrating on driving the business forwards.”
DW Sports finished the year with net assets of £3.3m. However, Mr Gee said that its properties had been conservatively valued at £95m – compared with £125m when they were on JJB’s balance sheet.
He said that although the retail market is expected to remain tough in the coming year, DW Sports is planning a number of initiatives – including the development of its own brand sportswear – that will provide a differentiation point with competitors.
“It will take time for people to get to know us,” he said. “But we’ve got a few good ideas in the pipeline and we’re building relationships with key suppliers.”
