ii view: JD Sports Fashion beefs up profit forecasts

It's expanding both stores and online selling outlets overseas. Buy, sell, or hold? 

Trading update for the 22 weeks to 1 January

ii round-up:

The multinational sports and outdoor retailer JD Sports Fashion (LSE:JD.) today delivered a broadly positive trading update. 

Sales for the period rose by more than 10% compared to the same time in 2020, with gross profit margins in line with the prior year. The robust performance enabled management to raise its full-year profit expectation to at least £875 million versus a current analyst consensus forecast of £810 million.

JD Sports shares rose by more than 4% in early UK trading, but drifted back to a marginal decline having risen by almost 28% over the last year. That compares to a gain of almost 11% for the wider FTSE 100 index and falls of over 50% for fellow apparel retailers ASOS (LSE:ASC) and Boohoo (LSE:BOO). 

Pandemic related supply chain challenges are being managed and, despite added UK employment costs and the fading of US government spending stimulus, profit for the year ahead to January 2023 was also upgraded. It is now forecast to be in line with this year.   

Broker UBS highlighted that the upgrade to year ahead profit guidance to around £875 million left it below investor hopes of over £900 million. But it also highlighted management’s historically conservative approach to guidance, with the upgrade overall, it believes, offering reassurance. 

Current full-year results to 29 January are scheduled for 12 April. 

ii view:

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. The UK generated its biggest slug of sales over the first half to the end of July 2021 at 38%, with the US coming in at 35%, Europe at 23% and the Rest of the World 4%. 

For investors, uncertainty with regards to the pandemic cannot yet be dismissed. Brexit and supply chain challenges are also an issue, costs are rising, while indebted consumers globally now face potentially higher interest rates. 

On the upside, JD’s track record for expansion and acquisitions is strong, with growth in the US proving its most recent focus. Online sales have seen JD weather pandemic store disruption well, while a previous logistics deal with Clipper underlines its intention to continue growing the channel. In all, and with the current analyst consensus estimate of fair value sat at 268p per share, the retailer looks to remain deserving of ongoing long-term investor support.    

Positives: 

• Diversity of product, brand name and geographical location
• Growing US sales

Negatives:

• Pandemic outlook uncertainty
• Ongoing supply chain challenges

The average rating of stock market analysts:

Strong buy