ii view: JD Sports sales and profits trend higher

by Keith Bowman from interactive investor |

A brief post-Christmas update offers reassurance, but a recent share sale raises questions.

Post-Christmas trading update

ii round-up:

In a brief statement light on numbers, retailer JD Sports Fashion (LSE:JD) provided investors with broad reassurance on trading. 

The company, whose brands include JD, size?, Footpatrol, Finish Line, Blacks, Millets and GO Outdoors, pointed to positive like-for-like trends across its global sports fashion fascias, particularly overseas.

In 2018, JD purchased US sports retail chain Finish Line for just under £400 million. Finish operates over 500 US stores across 44 states and propelled JD’s total worldwide outlets to over 2,200. Along with its UK and Irish outlets, its European footprint extends to over 600 stores, with around 80 in Asia.

Ahead of its mid-April full-year results, management is confident that pre-tax profit will be in the upper quartile of current analyst forecasts of between £403 million and £433 million. The Bloomberg compiled consensus equates to £419 million, giving earnings per share of 32.9p.

Results for the year ended 1 February 2020 will be published on 15 April.

The share price was little changed in late morning trading. 

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. 

JD’s move overseas and into the US offers opportunity. Increasing gross profit margins at Finish is likely to be central in its expansion plan. But a recent share sale by controlling shareholder Pentland Group and its chairman Stephen Rubin to reduce its stake to 55% raises questions. A trend for big brands such as Nike (NYSE:NKE) to sell through their own outlets, bypassing the likes of JD, also generates concern.

For investors, a 700%-plus gain in the share price over the last five years alone is highly impressive and exceeds that of both Amazon.com (NASDAQ:AMZN) and Netflix (NASDAQ:NFLX). A forward price/earnings (PE) ratio in the mid-20s and above both the three and 10-year averages suggests the share price is not obviously cheap. But it’s hard to argue with the company’s extremely impressive track record and earnings potential. 

Positives: 

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

Negatives:

  • UK retailers have a poor track record for expansion in the USA
  • Historic dividend yield of less than 0.5%

The average rating of stock market analysts:

Strong buy

These articles are provided for information purposes only.  Occasionally, an opinion about whether to buy or sell a specific investment may be provided by third parties.  The content is not intended to be a personal recommendation to buy or sell any financial instrument or product, or to adopt any investment strategy as it is not provided based on an assessment of your investing knowledge and experience, your financial situation or your investment objectives. The value of your investments, and the income derived from them, may go down as well as up. You may not get back all the money that you invest. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.

Full performance can be found on the company or index summary page on the interactive investor website. Simply click on the company's or index name highlighted in the article.

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