Interactive Investor

ii view: JD Sports shares fall – here’s why

It has been a tough year for this UK and overseas FTSE 100 retailer. However, with major sporting events due to start soon, will performance improve? We assess prospects.

31st May 2024 12:12

by Keith Bowman from interactive investor

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Unaudited full-year results to 3 February

  • Revenue up 4% to £10.54 billion
  • Adjusted pre-tax profit down 7.5% to £917 million
  • Net cash before lease liabilities down 30% to £1.03 billion
  • Final dividend of 0.6p per share
  • Total dividend for the year up 12.5% to 0.9p per share

Guidance:

  • Continues to expect pre-tax profit for the year ahead of between £955 million to £1.03 billion

Chief executive Régis Schultz said: “In the period, we again outperformed the market. This strong revenue performance was delivered in a challenging market, particularly through our peak trading period.

“Looking further ahead, we have a strong business model and a clear strategy to deliver long-term growth and value creation for our shareholders.

ii round-up:

Global sports-fashion retailer JD Sports Fashion (LSE:JD.) today detailed inline annual 2023 profits, maintaining its profit estimate for the year ahead, but reporting first-quarter sales below City expectations. 

Unaudited full-year pre-tax profit retreated 7.5% to £917 million in what management summarised as a challenging environment, with profits for the year ahead still expected to come in at between £955 million to £1.03 billion. First-quarter same store sales fell 0.7% year-over-year, below analyst hopes for a small increase and down from a gain of 0.1% in the fourth quarter, hindered by a 6.4% decline in the UK. 

Shares for the FTSE 100 retailer fell 10% in UK trading having come into this latest news down by around 12% over the last year. That’s similar to sporting goods maker Nike Inc Class B (NYSE:NKE), although below a 2% gain for US rival Foot Locker Inc (NYSE:FL) over that time. The 100 index itself is up almost 11% during the last year. 

JD Sports operates just over 3,300 stores in more than 35 countries. The 6.4% fall in UK sales during the first quarter compared to a 3.2% retreat during the previous quarter and came partially because of more disciplined promotional activity. The UK and Ireland generates a third of overall group revenues.

First-quarter sales on the same basis in North America, improved 2% year-over-year, with sales across Europe growing 1.6%. Each produces around 30% of overall sales. Asia-Pacific sales, accounting for the balance of 5%, retreated 0.1% from Q1 last year. 

Later-year 2024 sporting events such as the football Euros in Germany and the Paris Summer Olympics, along with easier comparatives from the second quarter onwards and an improving product pipeline, are all expected to aid performance going forward.

Broker UBS reiterated its buy stance on the shares post the results, flagging a recent outperformance of rivals. 

The group’s AGM is scheduled for 27 June with a second-quarter trading update due in August. 

ii view:

Started in 1981 and headquartered in Bury, Manchester, JD Sports today generates just over half its sales via footwear, with apparel coming in at almost a third, and accessories much of the balance. Its many brands globally include JD Sports itself, Size? Footpatrol, and Finish Line. The group also operates outdoor brands in the UK such as Blacks, Millets and Go Outdoors, accounting for around 5% of group sales. Five-year strategic pushes begun in 2023 include increasing the JD store footprint globally, strengthening complementary sports fashion offers and building a stronger online platform. 

For investors, pressured consumer spending has required increased promotional activity, hindering profit margins. The weather and the timing of sporting events can impact performance. JD’s relationship with sporting goods makers such as Adidas warrants consideration, with manufacturers offering goods online directly to consumers, while a forecast dividend yield of under 1% contrasts with yields of over 4% at fellow retailers Tesco (LSE:TSCO), Sainsbury (J) (LSE:SBRY), and Kingfisher (LSE:KGF)

To the upside, year-ahead headwinds are expected to ease, including an increase in new product releases for JD to sell. Brand and geographical diversity are strong, new stores continue to be opened, bolt-on acquisitions are still being found as shown by its previous acquisition of French sportswear retailer Courir, while net cash held before lease liabilities of over £1 billion in early February points to a robust balance sheet.  

For now, elevated borrowing costs feeding into pressured consumer spending and requiring continued promotional activity across its geographical regions provides room for caution. However, expected interest rate cuts combined with major sporting events and a consensus analyst estimate of fair value of over 165p all look to give grounds for longer-term hope. 

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

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