ii view: JD Sports reaffirms £1bn profit hopes despite US slowdown

Shares fell sharply last year, but this FTSE 100 retailer is fighting back in 2023. Buy, sell, or hold?

First-quarter AGM trading update

• Continues to expect current full-year profit to be in line with analyst estimates of around £1.04 billion

• Invest with ii: Top UK Shares | How to Start Trading Stocks | Open a Trading Account

ii round-up:

Global sports-fashion retailer JD Sports Fashion (LSE:JD.) operates both stores and websites across UK and more than 35 other countries.

Its other store brands include Size?, Finish Line and ShoePalace. 

Outdoor brands available in the UK and generating a balance of around 5% of sales include Blacks, Millets and Go Outdoors.

For a round-up of this latest trading update announced on 27 June, please click here.

ii view:

Started in the early 1980’s, JD today operates more 3,400 stores. Headquartered in Bury, Manchester, footwear generates its biggest slug of sales at 54%, followed by apparel at 35% and accessories much of the balance. Geographically, the UK and Ireland remain its largest region at 38% of sales, followed by North America at 31%, Europe 26% and the rest of the world 5%.  

For investors, slowing sales in North America come as interest rates have risen sharply and costs generally for businesses remain elevated. Sporting goods makers such as Nike Inc Class B (NYSE:NKE) are looking to build on their own direct relationship with consumers, particularly online, while a forecast dividend yield of under 1% contrasts with yields of over 4% for retailers like Tesco (LSE:TSCO), Sainsbury (J) (LSE:SBRY), and Kingfisher (LSE:KGF). 

• Sector Screener: a potent mix of growth potential and defensive appeal
• Richard Beddard: my savage derating of this popular FTSE 100 share
• ii view: M&S sparks investor optimism but is it justified?

More favourably, there's strong brand and geographical diversity and bolt-on acquisitions are still being found as shown by its recent acquisition of French sportswear retailer Courir. JD’s relatively young customer base, potentially living with their parents, arguably remains less exposed to current economic challenges, while the board’s push to allow possible share buybacks is also worth remembering. 

For now, and while the tough backdrop for consumers could affect demand, a consensus analyst estimate of fair value at over 225p per share suggests optimism in the City and potential for upside longer term. 

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