ii view: JD Sports bullish on US growth tactics

First-half results to 26 August

• Revenue up 5.2% to £5.03 billion
• Adjusted pre-tax profit up 2% to £405.6 million
• Interim dividend up 10% to 33p per share
• Net cash before lease liabilities of £40.8 million
• Net debt including lease liabilities of £2.84 billion

Guidance:

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

Chief executive Régis Schultz said:

"Our acquisition of Hibbett, Inc., which completed just before the period end, is a key milestone in our international development and advances the global nature of the Group through our strengthened position in the US. I remain confident in the delivery of our exciting growth plans for North America and that the Group is well positioned to continue growing share in the world's largest sportswear market.

“Our strong business model and clear strategy position us to deliver long-term growth and value creation for our shareholders."

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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 itself, other store brands include Finish Line, ShoePalace and Sprinter. Outdoor brands owned in the UK include Blacks, Millets and Go Outdoors.

For a round-up of these latest results announced on 2 October, please click here.

ii view:

Headquartered in Bury, Manchester, JD Sports employs around 90,000 people. Geographically, the UK and North America came in at around a third each last year, with Europe accounting for almost 30% and Asia Pacific the balance of 5%. The recent acquisition of Hibbert is expected to see North American sales rising to around 40% 

Footwear generates just over half of all revenues, followed by apparel at almost a third and accessories most of the balance. Close to 22% of sales are made online. A five-year strategic initiative started in 2023 aims to increase its JD store footprint globally, strengthen its complementary sports fashion offers and build a stronger online platform. 

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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. The purchase of Hibbert has taken net cash down to £40 million from a previous £1 billion, while a forecast dividend yield of under 1% contrasts with yields of 3.5% or over at fellow retailers Tesco (LSE:TSCO), Sainsbury (J) (LSE:SBRY), and B&Q owner Kingfisher (LSE:KGF). 

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To the upside, headwinds are likely to ease given expected new product releases and cuts to interest rates. Brand and geographic diversity remain strong. The group’s store base continues to grow, aided by acquisitions, while a forecast price/earnings (PE) ratio of around 11 times is much less than the 10-year average of 16 times, implying good value.

On balance, and while a historic lack of UK retailing success in the US is a concern, a consensus analyst estimate of fair value above 170p suggest long-term optimism in the City.    

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