ii view: JD Sports shares tumble despite £10bn of sales

A series of acquisitions have seen this UK retailer expand sales overseas, with profit for the year ahead expected to exceed £1 billion. We assess prospects.  

Full-year results to 28 January

• Revenue up 18% year-over-year to £10.1 billion
• Adjusted profit up 5% to £991 million
• Profit including exceptional items down 33% to £441 million
• Total dividend for the year of 80p, up from 35p 
• Net cash balance of £1.47 billion, up from £1.186 billion  

Guidance:

• Expects adjusted profit the year to early February 2024 of £1.03 billion

Chairman Andrew Higginson said: 

"JD continues to be the partner of choice for many international brands who see our premium fascias as the natural global home for their latest ranges and freshest new styles.

“Whilst we are encouraged by the resilient nature of the consumer demand in the current period to date, we remain conscious of the headwinds that prevail at this time including the general global macro-economic and geopolitical situation.”

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ii round-up:

Global retailer JD Sports Fashion (LSE:JD.) today detailed sales for the early weeks of the new financial year ahead of City forecasts but left its annual profit expectation unchanged. 

Sales stripping out acquisitions for the first 13 weeks of the new financial year rose 15%. Analysts had forecast an increase of 7% for the first half of the year. However, management left its adjusted pre-tax profit forecast for the year to early February 2024 little changed at £1.03 billion. 

Shares in the FTSE 100 company fell by more than 6% in UK trading having come into this latest update up by over a third year-to-date. That’s similar to global online retail giant Amazon.com Inc (NASDAQ:AMZN), although China exposed Nike Inc Class B (NYSE:NKE) is virtually unchanged. The FTSE 100 index itself is up 4% so far in 2023. 

Sales for the owner of store brands including JD Sports itself, Footpatrol and Tessuti, rose by close to a fifth year-over-year to £10.1 billion, the first time they've hit eleven figures. Sales were helped by positive momentum in North America and a normalising of supply from brands following the pandemic. 

Pushed by increased sales, adjusted profit for the year to the end of January hit a new record £991 million. Profits including exceptional items in relation to the disposal of non-core branded fashion businesses fell by a third to £441 million. 

In February, new chief executive Régis Schultz outlined plans to spend up to £3 billion to roll out as many as 1,750 stores globally over five years. In early May, JD added to its list of global acquisitions by buying French sportswear retailer Courir for €520 million. 

Broker UBS reiterated its ‘buy’ stance on the shares following the results. 

ii view:

Started in 1981 and headquartered in Bury, Manchester, JD Sport today operates both stores and websites across the UK and much of the world. Other fashion store brands include Size?, Finish Line and ShoePalace, with outdoor brands Blacks, Millets and Go Outdoors also available in the UK. Footwear is its biggest seller at 54% of revenues, followed by apparel at 35% and accessories much of the balance. Geographically, the UK and Ireland remain its largest region at 38% of sales, followed by North America at 31%, Europe 26% and the rest of the world 5%.  

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For investors, rising interest rates and a cost-of-living crisis offer a challenging backdrop for its customers. Sporting goods makers such as Nike are looking to build on their own direct relationship with consumers, costs generally for businesses remain elevated, while an estimated price earnings ratio of around 13 times is not cheap compared to some rivals. 

On the upside, both brand and geographical diversity are considerable. Its relatively young customer base, potentially living with their parents, arguably remain less exposed to current economic challenges. Previous issues with product availability in the wake of the pandemic have improved, while its ability to tap its former head for advice offers some comfort. 

On balance, and while some caution looks sensible given the tough economic backdrop and stock volatility, a consensus analyst estimate of fair value at over 227p generates scope for long-term optimism.  

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