ii view: JD Sports Fashion rebound begins with 10% rally

Trading update for the full year to 3 February

• Pre-tax profit expected to be in line with forecasts at between £915 million and £935 million

Guidance:

• Pre-tax profit for the year ahead expected to be between £900 million and  £980 million

Chief executive Régis Schultz said:

"In our FY24 financial year, we outperformed the sportswear market, reflecting the strength of our business. We made good strategic progress, opening 215 new JD stores. We expect profit before tax for the year to be in line with the guided range given in January.

“We continue to invest in our people and the infrastructure needed to deliver our long-term growth plan. I am excited about the opportunities for the JD Group going forward and our ability to deliver attractive returns to shareholders."

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ii round-up:

Global sports fashion retailer JD Sports Fashion (LSE:JD.) today flagged challenging first quarter trading but has forecast an improvement as the year progresses given a busy sporting summer calendar. 

Sales growth excluding acquisitions is expected to be as much as 9% versus City forecasts of 8%, potentially driving full-year pre-tax profit up to £980 million compared to current analyst estimates of £976 million.   

Shares in the FTSE 100 retailer rose 10% in UK trading, having come into this latest news down by more than a quarter year-to-date following a damaging profits warning in January. That compares to falls closer to a tenth for US rival Foot Locker Inc (NYSE:FL) and sporting goods maker Nike Inc Class B (NYSE:NKE). The FTSE 100 index itself is up 3% in 2024.  

Upcoming 2024 sporting events such as the football Euros in Germany and the Paris summer Olympics, along with easier year-on-year comparatives from Q2 onwards plus improving product pipeline, are all expected to aid the anticipated improvement at JD’s this year.

Profit for the the 53 weeks to 3 February 2024 are still expected to come in at as much as £935 million, down from earlier year hopes of up to £1.04 billion, impacted by increased promotional activity, particularly online, and reduced new product releases. 

Broker UBS reiterated its ‘buy’ stance on the shares post the trading update, flagging management’s outlook hopes as less bad than it had previously expected. 

Full-year results are likely to be announced in late May. 

ii view:

Started in 1981, JD Sport today operates just over 3,300 stores in more than 35 different countries and including the USA. Headquartered in Bury, Manchester, footwear generates most of its sporting sales at just over half, followed by apparel at almost a third and accessories much of the balance. The FTSE 100 retailer also operates outdoor brands in the UK such as Blacks, Millets and Go Outdoors accounting for around 5% of overall group sales.

For investors, pressured consumer spending given now heightened costs such as those for rent are pushing consumers to look for promotions and discounts. The weather and the timing of sporting events can impact demand and financial performance. JD’s relationship with sporting goods makers such as Adidas warrants consideration with manufacturers offering goods online directly to consumers, while a forecast dividend yield of under 1% contrasts with yields of over 3% for fellow retailers Tesco (LSE:TSCO), Sainsbury (J) (LSE:SBRY), and Kingfisher (LSE:KGF).

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On the upside, headwinds are expected to ease, including an increase in new product releases for JD to sell. Brand and geographical diversity are strong, new stores continue to be opened, bolt-on acquisitions are still being found as shown by its previous acquisition of French sportswear retailer Courir, while net cash of over £1 billion as at interim results published in September points to a robust balance sheet.  

Grounds for caution persist given many consumers remain pressured and anticipated interest rate cuts are not guaranteed. However, management's optimistic outlook is encouraging, with lots of potential catalysts this summer and a consensus analyst estimate of fair value of 175p.  

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