Interactive Investor

ii view: JD Sports confident enough to give annual profit forecast

11th September 2020 11:33

Keith Bowman from interactive investor

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Covid has hurt and costs have risen, but customers and investors continue to back this sports retailer. 

First-half results to 1 August

  • Revenue down 6.5% to £2.54 billion
  • Pre-tax profit down 68% to £41.5 million
  • Net cash held up 548% to £765 million
  • No interim dividend payment

Guidance:

  • Expects profit before tax for the full year of at least £265 million

Executive chairman Peter Cowgill said:

"Ultimately, given the unique circumstances of this trading period, we are reassured by the strength of the JD brand as demonstrated by the retention of more than 90% of the total revenues. However, it should be recognised that this has necessitated additional costs principally relating to the provision of enhanced health and safety measures.

"We are generally encouraged by our performance since the stores re-opened and with our performance in the first few weeks of the second half. However, retail footfall remains comparatively weak and the recent strengthening of measures in many countries and the subsequent temporary closure of some stores reminds us that Covid-19 remains an ongoing challenge. Nonetheless, we remain absolutely confident in our strengths in consumer engagement, key brand relationships and globally consistent multichannel retail standards."

ii round-up:

Retailer JD Sports Fashion (LSE:JD.) operates both brick and mortar store outlets and an online retailing business. 

It sells high fashion sporting items such as training shoes and branded clothes along with outdoor items such as camping equipment. Sport fashion goods account for over 90% of sales. 

Its portfolio of over 2,400 stores are spread across the UK & Ireland, Europe, the USA and Asia Pacific. The UK accounts for the lion’s share of sales at just under 40%, then the US at around a third, Europe a quarter and Asia Pacific the balance.  

Its brands include JD, Size?, Finish Line, Go Outdoors and Millets. 

It also operates around 30 gyms across the UK.

For a round-up of these latest results, please click here.

ii view:

The rise of sports men and women to near rock star status, and the acceptance of more casual work wear, are trends which have helped fuel the impressive growth of sports retailers and apparel brands over recent years. Shares of Nike (NYSE:NKE) are up by more than 500% over the last 10 years. JD shares are up over 1,500%. Through expansion and acquisition, JD has clearly played its hand well.

Now Covid-19 has seen many of its stores closed across 14 countries from mid-March, only to begin opening again in some countries from the end of April. Costs to both execute increased online sales as its outlets closed, and then prepare its stores for trading under pandemic social distancing, have taken their toll in the past six months. 

For investors, the outlook clearly remains clouded by the pandemic and the potential for a second wave. With 90% of its stock purchased from international brands, Brexit and ongoing negotiations also need to be considered. That said, stores have reopened, customer migration online is highly favourable, while management is now confident enough to offer a full-year pre-tax profit estimate of at least £265 million. In all, given the company’s impressive long-term track record, JD remains deserving of investor support.    

Positives: 

  • Diversity of product, brand name and geographical location
  • Net cash of £765 million

Negatives:

  • Brexit uncertainty
  • Maybe forced to sell Footasylum under CMA decision

The average rating of stock market analysts:

Strong buy

These articles are provided for information purposes only.  Occasionally, an opinion about whether to buy or sell a specific investment may be provided by third parties.  The content is not intended to be a personal recommendation to buy or sell any financial instrument or product, or to adopt any investment strategy as it is not provided based on an assessment of your investing knowledge and experience, your financial situation or your investment objectives. The value of your investments, and the income derived from them, may go down as well as up. You may not get back all the money that you invest. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.

Full performance can be found on the company or index summary page on the interactive investor website. Simply click on the company's or index name highlighted in the article.

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