ii view: JD Sports recovery comes unstuck

Full-year (FY) results and first-quarter (Q1) trading to 3 May

• FY revenue up 8.7% to £11.5 billion
• Adjusted pre-tax profit down 4% to £923 million
• Net cash before lease liabilities of £52 million, down from £1.03 billion
• Final dividend of 0.67p per share
• Total dividend for the year up 11% to 1p per share
• Q1 same store sales down 2%

Chief executive Régis Schultz said:

"Overall trading in the first quarter of the new financial year has been in line with our expectations in a volatile market. Despite this volatility, and uncertainty surrounding the impact of US tariff changes, we look forward into the medium term with confidence that we can continue to outperform the market, improve our profit margin and create significant value for our shareholders."

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ii round-up:

JD Sports Fashion (LSE:JD.) today detailed early year sales that missed City expectations, with the global sports-fashion retailer flagging low outlook visibility following the recent introduction of US trade tariffs. 

First-quarter same store sales to early May retreated 2% from a year ago, with sales on the same basis for its biggest North American region, accounting for 37% of revenues, down 5%. Analysts had been expecting group-wide same store sales to fall by around 1%. Adjusted pre-tax profit for the full year to early February broadly matched management forecasts, falling 4% to £923 million. 

Shares in the FTSE 250 company fell 7% in UK trading having come into this latest news down by almost a quarter over the last year. The FTSE 250 index itself is up close to 1% over that time. Major supplier Nike Inc Class B (NYSE:NKE) is down by a third over the last year. 

JD Sports operates 4,871 stores and a series of websites across North America, Europe, the UK and Asia Pacific. In April, the Bury, Manchester headquartered company outlined a new strategy to focus on profits and shareholder returns given the backdrop of an anticipated slowdown in sales. 

A final dividend of 0.67p per share takes the total payment for the financial year up 11% to 1p per share. A new £100 million share buyback programme is due to complete no later than 31 July. 

Group acquisitions of Hibbett in the US and Courir in Europe over the year took group net cash held down to £52 million from £1.03 billion in early February 2024. 

Same store European sales and accounting for 31% of overall revenues during the first quarter rose 0.7%. UK sales on the same basis, and generating 28% of revenues, improved 0.4%. Asia Pacific sales and accounting for the balance of 4% of revenues, fell 5.5%. 

Management in relation to trade tariffs highlighted their potential impact on factors including customer confidence, brand suppliers making product across Asia and the cost of shop fixture and fittings. 

JD’s AGM is scheduled for 2 July with a second-quarter trading update due sometime in August. 

ii view:

Started in 1981, JD Sports today employs around 80,000 people. Footwear generates most sales at 60%, followed by apparel at 31%, accessories 6% and outdoor equipment and gym memberships the balance of 3%. Stores generate most sales at 79%, with online a further 20% and gym memberships the balance of 1%. Away from JD Sport itself, other store brands include Finish Line, ShoePalace and Sprinter, with outdoor UK brands under Blacks, Millets and Go Outdoors.

For investors, pressured consumer spending and slower product innovation by suppliers have contributed towards slower sales. The recently announced merger between US competitors Foot Locker and Dick's Sporting Goods will likely intensify competition in its biggest North American region. JD’s relationship with sporting goods makers Nike and Adidas warrants consideration, with each also looking to grow online sales directly to consumers, while a forecast dividend yield of 1% compares to forecast yields of over 2% at Next (LSE:NXT) and B&Q owner Kingfisher (LSE:KGF). 

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On the upside, store openings and acquisitions have increased store numbers by more than 1,500 over this latest financial year. Brand and geographical diversity remain strong. Management estimates that JD’s sales growth is about double that of the market average, while M&A activity in the US could raise the potential for further sector activity.   

For now, a refocus by management on profits and shareholders returns offers long-term hope. That said, with trade tariff uncertainty high and profits down, cautious investors at least may decide to await evidence of a turnaround before taking an interest. 

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