How JD Sports shares extended winter rally to 38%

Many retailers have proved more resilient than expected over the Christmas period, but JD has a history of outperforming at this time of year, reports Lee Wild.

Like most of the big names in retail, JD Sports Fashion (LSE:JD.) shares spent the final quarter of 2018 in freefall. Much of the downside for the sector was driven by profit warnings and fear of a crushing Christmas. Now, like others, JD has confirmed business was actually quite good, which explains why the share price, trading at 318p in December, just surged a further 11% to 441p.

Sales jumped 15% in the 48 weeks to 5 January, and 5% on a like-for-like basis, we're told. That includes a "consistently positive like for like performance across Black Friday and the Christmas period". The implication here is that second half sales grew by around 6% versus consensus estimates of 4% growth, in line with the first half. 

Deciding against heavy discounting over the festive period prevented any deterioration in gross margin from a year ago and, despite some extra labour costs as JD grows into its new Kingsway warehouse extension, headline profit before tax for the year ended 2 February 2019 will be at the upper end of market expectations, currently £325-£352 million.

And these numbers do not include any contribution from the recent acquisitions of Finish Line in the United States and Sport Zone in Iberia. JD opened its first five American stores just before the holiday season, including three converted Finish Line stores. It's so encouraged by developments that another 15 further Finish Line outlets are scheduled for conversion in the first half of 2019.

Executive chairman Peter Cowgill is clearly chuffed with performance, and so are the analysts. 

Source: TradingView (*)  Past performance is not a guide to future performance

"The shares are down >20% from peak last summer [539p], on fears of slowing momentum, margin headwinds, risks from brand [Direct to Consumer] and scepticism on the Finish Line opportunity – all of which we believe have been positively addressed in today's statement," writes Graham Renwick at Berenberg.

"We see no reason why the shares won’t re-rate back to these levels."

JD shares are up as much as 38% since the 2018 low on 20 December. However, even at 429p, JD trades on less than 14 times forward earnings, and even this update could prove conservative, implying room for further upgrades at the full-year results on 16 April, as happened last year.

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This performance should come as no surprise to followers of our interactive investor Winter Portfolios. JD Sports has been a regular feature in our annual selection of stocks which consistently generate significant gains over the winter months.

In the six months from 1 November 2015 to 30 April 2016, JD shares rose 29%. They jumped 46% the following winter, 9% in 2017-18 and are up 5.2% so far this winter, compared with the FTSE 350 benchmark index currently down 3.7%.

*Horizontal lines on charts represent levels of previous technical support and resistance. Trendlines are marked in red.