ii view: JD Sports bullish following big US acquisition

Second-quarter trading update to 3 August

• Like-for-like sales were up 2.4%

Guidance:

• Continues to expect pre-tax profit for the year ahead of between £955 million and £1.03 billion excluding its recent Hibbett US acquisition

Chief executive Régis Schultz said:

“Based on our first-half trading, we remain on track to deliver profit within our full-year guidance."

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ii round-up:

Global sports-fashion retailer JD Sports Fashion (LSE:JD.) operates 4,506 stores and a series of websites across the UK and more than 35 other countries.

Away from JD Sports, other store brands include Finish Line, ShoePalace and Sprinter.

Outdoor brands available in the UK and generating a balance of around 5% of sales include Blacks, Millets and Go Outdoors.

For a round-up of this latest trading update announced on 22 August, please click here.

ii view:

Started in 1981 and headquartered in Bury, Manchester, JD Sports today employs around 90,000 people. Footwear generates just over half of all revenues, followed by apparel at almost a third and accessories most of the balance. Around 22% of overall sales are made online. Geographically, the UK and North America last year came in at around a third each, with Europe accounting for almost 30% and Asia Pacific the balance of 5%. Five-year strategic pushes kicked off in 2023 include growing its store footprint globally, strengthening its complementary sports fashion offers and building a stronger online platform. 

For investors, pressured consumer spending has required ongoing promotional activity, hindering profit margins. The weather and the timing of sporting events can impact performance. JD’s relationship with sporting goods makers Nike and Adidas warrants consideration, with each also looking to grow online sales directly to consumers, while a forecast dividend yield below 1% contrasts with yields of 3.5% or more at fellow retailers Tesco (LSE:TSCO), Sainsbury (J) (LSE:SBRY), and B&Q owner Kingfisher (LSE:KGF). 

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More favourably, bolt-on acquisitions continue to be made with almost 1,200 stores added year-to-date and driven by the £900 million acquisition of US retailer Hibbett. Previous headwinds are likely to ease given expected new product releases and cuts to interest rates. Brand and geographical diversity remain strong, while net cash held before lease liabilities of over £1 billion in early February points to a robust balance sheet.  

On balance, and despite continued risks, investors will like market share growth and be encouraged by a consensus analyst fair value estimate above 165p.

Positives: 

• Diversity of product, brand name and geographical location
• Continued new store openings 

Negatives:

• Uncertain economic outlook
• Subject to currency movements

The average rating of stock market analysts:

Buy