ii view: JD Sports gives glimpse in rear-view mirror

Should investors focus on a Covid-hit younger customer demographic, or growing overseas sales?

Full-year results to 1 February

• Revenue up 30% to £6.11 billion
• Profit before tax and exceptional items up 24% to £439 million
• Net cash up 245% to £430 million
• No final dividend payment

Executive chairman Peter Cowgill said:

"Whilst Covid-19 has constrained our short-term progress, it is important that we do not lose sight of the core retail standards and commercial disciplines which have underpinned our longer term growth to date. JD has a market leading multi-channel proposition which maximises its consumer relevance and reach by creating, and then maintaining, a deep emotional connection with its consumers who see JD as an authoritative and trustworthy source of style and fashion inspiration with influences drawn from both sport and music.

"We were encouraged by the continued positive trading in the early weeks of the year prior to the emergence of Covid-19 and we firmly believe that we are well placed to regain our previous momentum. Looking longer term, there is inevitably considerable uncertainty as to what the effect of Covid-19 will be on consumer behaviour and footfall with future store investments highly dependent on rental realism and lease flexibility. Ultimately, however, we remain confident that we have a market leading multi-channel proposition which has the necessary flexibility and agility to prosper within a retail environment that may see profound and permanent structural change."

ii round-up:

Retailer JD Sports Fashion (LSE:JD.) operates both brick & 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 2,200 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 over 40%, with Europe and the US almost equal in second place at around a quarter of sales each, and Asia Pacific the balance of around a tenth.  

Brands include JD, Footpatrol, Finish Line, Blacks and Millets. 

It also operates around 30 gyms across the UK with a membership base of approximately 158,000 members.

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

ii view:

Acceptance of more casual workwear and the rise of sports men and women to near rock star status, are arguably trends which have helped fuel the impressive growth of sports retailers and apparel brands over recent years. Through expansion and acquisition, JD has clearly played its hand well. 

For the financial year to the end of February, UK & Ireland like-for-like sales grew by more than 10%. A full-year contribution from the combined Finish Line and JD businesses in the US, following an acquisition, saw it contributing around a fifth of operating profit. It now has 24 stores in Australia. 

However, looking forward, Covid-19 forced the closure of its store portfolio in 14 countries, representing more than 98% of outlet sales as of 23 March. Stores began to re-open in some countries from the end of April with most of the stores now back trading.

For investors, the full impact of trading under the pandemic is yet to be clarified. A younger customer demographic and a disproportionately high hit to their jobs and use of public transport, as highlighted by broker Morgan Stanley, warrant consideration. A trend for big brands such as Nike to sell through their own outlets, bypassing the likes of JD, also raises possible further concern. But for now, given the company’s extremely impressive track record, investors may attempt to see through near-term uncertainty towards expected long-term growth. 

Positives: 

• Diversity of product, brand name and geographical location
• Expanding international presence

Negatives:

• May be forced to sell Footasylum under Competition and Markets Authority (CMA) decision
• Brexit uncertainty – around a quarter of sales come from Europe

The average rating of stock market analysts:

Strong buy