ii view: JD Sports profit falls but keeps guidance

Shares in this FTSE 100 tracksuits and trainers chain are down by more than 40% year-to-date. Buy, sell, or hold?

First-half results to 30 July

• Revenue up 14% to £4.42 billion
• Profit before tax and exceptional items down 15% to £383 million
• Net cash held up 2% to £1.01 billion
• Interim dividend of 0.13p per share proposed (2021: Nil)

Non-executive Chair Andrew Higginson said:

“Whilst this has been a period of transition for the Board, it is reassuring that this has not impacted the financial performance of the Group which continues to deliver strong results. With this year expected to follow a more normalised trading pattern, this result is at the top end of our expectations for the first half demonstrating the ongoing resilience of our global proposition and the strength of our consumer engagement.

“Given the widespread macro-economic uncertainty, inflationary pressures and the potential for further disruption to the supply chain with industrial action a continuing risk in many markets, it is inevitable that we remain cautious about trading through the remainder of the second half.”

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ii round-up:

Global sports fashion retailer JD Sports Fashion (LSE:JD.) today detailed first-half profit which fell marginally shy of City forecasts, with accompanying management outlook comments expressing caution for the second half. 

Adjusted pre-tax profit fell 15% to £383 million, hit by a near halving in North American profit given tough comparatives due to a US government spending stimulus programme last year, and current supply chain challenges for some brands hindering availability of key footwear styles, particularly in the first quarter. 

JD Sports shares fell by around 5% in UK trading having come into this latest update down by more than 40% year-to-date. Shares for sporting goods marker Nike Inc (NYSE:NKE) have fallen by a similar amount during 2022, while online clothing retailers Boohoo Group (LSE:BOO) and ASOS (LSE:ASC) have both slumped by more than two-thirds. The FTSE 250 index is down by a fifth as investors continue to ponder rising interest rates and a consumer cost-of-living crisis. 

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Current trading comments from JD Sport pointed to similar trends to the first half, with total sales across its organic retail businesses up around 8% of the prior year after six weeks.

The FTSE 100 retailer reiterated its expectation for adjusted profit for the full year to the end of January to be in line with its record performance last year of £947 million.

Broker UBS flagged what it believed was a ‘good’ start to the second half, reiterating its ‘buy’ stance. 

JD Sport only recently agreed payment and terms with former executive chairman of 18 years Peter Cowgill following his acrimonious departure. The agreement included new enhanced restrictions and gives JD Sport access to Mr Cowgill’s knowledge and experience. 

ii view:

JD sells high fashion sporting items such as training shoes and branded clothes. It operates a portfolio of over 3,100 clothing fashion stores spread across the UK & Ireland, Europe, the USA, and Asia Pacific. It also operates nearly 250 stores selling outdoor clothing and products via store brands such as Blacks, Millets and Go Outdoors. 

For investors, a cocktail of elevated inflation, rising interest rates and a cost-of-living crisis for consumers provide a tough backdrop. Costs generally for businesses are rising, supply chain challenges continue to be experienced, hitting product availability, while its push to make acquisitions is not without risk.  

More favourably, and despite a tough economic outlook, profit guidance for the full year was maintained. Diversity in both products sold and geographical regions is not to be overlooked, while agreement with its previous executive chair also offers reassurance. 

On balance, and while some caution in management outlook comments is understandable, a consensus analyst estimate of fair value standing at close to 200p per share implies longer term optimism in City circles.

Positives: 

• Diversity of product, brand name and geographical location
• Continued new store openings 

Negatives:

• Uncertain economic outlook
• Supply challenges

The average rating of stock market analysts:

Buy