ii view: JD Sports – is football World Cup a buying opportunity?

Third-quarter trading update to 1 November

• Total revenues including previous acquisitions up 8.1%
• Like-for-like or same store sales down 1.7%

Guidance:

• Now expects current full-year profits at the lower end of an £853-888 million range, down from a previous £878 million

Chief executive Régis Schultz said:

"We continued to make good progress with our strategic objectives in the quarter, against what remains a tough market backdrop. Our multi-brand and cross-category approach, and agility in responding to changing customer trends, are helping us to offset known consumer and industry headwinds. We are also controlling our costs and cash well through our focus on operating and financial discipline.

“We remain confident in the overall positive trajectory for our industry and JD Group over the medium term, and this is well reflected in our commitment to enhanced shareholder returns."

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ii round-up:

Global sports-fashion retailer JD Sports Fashion (LSE:JD.) operates 4,851 stores and a series of websites across 36 countries.

Away from JD Sport itself, other store brands include Finish Line, ShoePalace and Sprinter. Outdoor brands owned in the UK include Blacks, Millets and Go Outdoors.

For a round-up of this latest trading update announced on 20 November, please click here.

ii view:

Started in 1981, JD Sports today employs around 90,000 people. Footwear generated most sales during its last financial year at 60%, followed by apparel at 31%, accessories 6% and outdoor equipment and gym memberships the balance of 3%. Geographically, North America accounted for most sales during this latest quarter at 37%, followed by Europe at 35%, the UK 24%, and Asia Pacific the balance of 4%. 

For investors, required promotional activity impacts profit margins, and the challenging backdrop for consumers globally is not to be overlooked. Accompanying management comments flagging recent weak macro and consumer indicators warrant consideration. JD’s relationship with sporting goods makers Nike Inc Class B (NYSE:NKE) and adidas AG (XETRA:ADS) deserves thought, with each also targeting their own online sales direct to consumers, while a forecast dividend yield of 1.3% compares to yields above 3% at fellow retailers Tesco and Next.  

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On the upside, management is taking action to improve performance, including more focused marketing, finding cost savings from previous takeovers and investing in technology to aid online performance. Some positive influence from sporting events has been seen ahead of previous football World Cups, with the competition kicking off in North America in 2026. Brand and geographical diversity persist, while an estimated share price-to-net asset value comfortably below the three-year average may suggest emerging value.

In all, falling same store sales and reduced profit expectations offer significant room for caution. That said, ongoing management actions, a previous refocusing by management on profits and shareholders returns, and a consensus analyst fair value estimate above 110p per share will likely see more speculative investors remain interested. 

Positives: 

• Diversity of product, brand name and geographical location
• Management actions to improve performance 

Negatives:

• Uncertain economic outlook
• Subject to currency movements

The average rating of stock market analysts:

Cautious buy