ii view: JD Sports shares back to 2022 levels – a chance to buy?

Third-quarter trading update to 2 November

• Group like-for-like sales down 0.3%

Guidance:

• Now expects full-year pre-tax profit towards the lower end of a previous £955 million to £1.03 billion forecast

Chief executive Régis Schultz said: “After a good start to the period, helped by strong back-to-school sales, we saw increased trading volatility in October, particularly in North America and the UK, reflecting elevated promotional activity and mild weather.”

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ii round-up:

Global sports fashion retailer JD Sports Fashion (LSE:JD.) operates 4,541 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 this latest trading update announced on 21 November, please click here.

ii view:

Started in 1981, 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. 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%. E-commerce related sales total just over a fifth. 

Five-year management initiatives commenced in 2023 include expanding its global presence, strengthening complementary sports fashion offers and building a stronger online platform. 

For investors, pressured consumer spending has required ongoing promotional activity, hindering profit margins. JD’s relationship with sporting goods makers Nike Inc Class B (NYSE:NKE) and adidas AG (XETRA:ADS) warrants consideration, with each also looking to grow online sales directly to consumers. Mild autumn weather has impacted sales. Increased taxes following the UK Budget are likely to be a hinderance going forward, while the previous purchase of Hibbert took net cash down to £40 million as of late August from a previous £1 billion. 

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More favourably, store openings and a sizeable acquisition have increased store numbers by more than a third since the start of the year. Brand and geographical diversity remain strong. Political uncertainty from US elections looks to have dampened demand, while a forecast price/earnings (PE) ratio of close to eight times sits below the 10-year average of 16 times, suggesting improved value.

In all, pressured consumer spending is offering headwinds. That said, a presence in the world’s biggest sportswear market, the US, has grown, with further likely interest rate cuts for the nation potentially proving supportive going forward.     

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