ii view: JD Sports hits record high amid profit optimism

Covid has hurt but its UK stores are now open again, and US expansion is ongoing. Buy, sell or hold? 

Full-year results to 30 January

Executive chairman Peter Cowgill said:

“We have a market leading multichannel proposition which continues to enhance its relevance to consumers and has the necessary agility to progress in an environment where the retailing of international brands may see permanent global structural change.

"Our recent completed acquisitions of Shoe Palace and DTLR in the United States together with the conditional acquisition of Sizeer in Central and Eastern Europe are important steps in our evolution which will transform our consumer connection in these markets and further develop our key brand relationships.”

ii round-up:

Sportwear retailer JD Sports Fashion (LSE:JD.) expects profit to grow over the financial year ahead as its UK stores reopen from virus closures and online sales continue to expand.

Pre-tax profit to the end of January 2022 is forecast to come in at between £475 million and £500 million, up from 2020’s pandemic hit £421 million. Confidence in the outlook also underwrote a resumption of the dividend, with a final payment of 1.44p per share declared. 

JD shares hit an all-time high of 935p in UK trading, having risen by over a quarter since late October and just prior to the announcement of vaccine development success. Shares for fellow clothing retailer Next (LSE:NXT) are up by more than a third over the same time, while shares for sporting goods maker Nike (NYSE:NKE)are up by around 15%. 

JD sells high fashion sporting items such as training shoes and branded clothes. It operates a portfolio of around 2,400 clothing fashion stores spread across the UK & Ireland, Europe, the USA, and Asia Pacific. It also operates over 200 stores selling outdoor clothing and products such as Blacks, Millets and Go Outdoors. 

In February, it raised just over £460 million via a sale of shares to institutions to help finance acquisitions. Recent purchases include businesses operating store outlets in both North Eastern USA and Central Europe.

Profit for the pandemic hit 2020 financial year to the end of January fell by 4% £421 million, with growth in online sales helping to compensate for lost sales under closed pandemic lockdowns. Store outlets in England and Wales have just re-opened, while stores in the US have largely traded free from Covid restrictions during the new 2021 financial year to date. 

Exceptional trading for its expanding US business helped net cash nearly double to £795 million. Profit for its US business rose by just over 80% to £170.5 million including a contribution from its recently acquired Californian Shoe Palace business. Its outdoor business returned to profitability in the second half of the year. 

ii view:

Retailer JD Sports Fashion operates both brick & mortar store outlets and over 15 localised trading websites. Its brands include JD itself, Size?, Footpatrol and Finish Line. The UK accounts for the lion’s share of sales at just over 40%, with the acquisition fuelled US coming in at 29%. Europe accounts for around a quarter and Asia Pacific the balance.  

For investors, the potential for renewed lockdowns next winter cannot be completely dismissed, while challenges following the UK’s exit from the EU now underpin an expansion of its Dublin warehouse operation. A return to leisure activities as Covid restrictions lift could also see spending consumer spending redirected, at least for a short while.  

But compensating online sales look to have seen it weathering the pandemic relatively well. A new logistics deal with Clipper appears to underline its intention to continue pushing this channel, while acquisitions and a 10% increase in US sales over the year signify the increasing importance of the vast US market to the company. In all, and allowing for the retailer’s strong long-term track record, JD looks to remain deserving of investors’ continued support.    

Positives: 

• Diversity of product, brand name and geographical location
• A restarted dividend payment

Negatives:

• Ongoing pandemic uncertainty
• Some Brexit challenges

The average rating of stock market analysts:

Buy