Interactive Investor

ii view: why there’s no stopping JD Sports Fashion

11th January 2021 11:50

Keith Bowman from interactive investor

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Covid is impacting the business but shares for this sporting retailer just made a new high.

Second-half trading update to 2 January

  • Revenues more than 5% ahead of comparative period

ii round-up:

Sportwear retailer JD Sports Fashion (LSE:JD.) today outlined its expectations for full-year profit to be significantly ahead of current analyst forecasts of around £295 million, given strong online trading during pandemic forced temporary store closures. 

Revenues for the second-half period to the start of January rose by more than 5% compared to last year, with full-year profit to the 30 January now expected to be at least £400 million.

JD Sports shares rose by more than 4% in UK trading, leaving them up around 7% over the last year. Shares for fellow clothing retailer Next (LSE:NXT) are up by 10% over the last year, while shares for US sporting goods maker Nike (NYSE:NKE) are up by more than 40%. 

JD sells high fashion sporting items such as training shoes and branded clothes. It operates a portfolio of over 2,400 stores spread across the UK & Ireland, Europe, the USA and Asia Pacific and an online offering.

Looking ahead, the retailer also flagged its expectations for Covid-19 restrictions to run into the new financial year – particularly the first quarter. As such, its current best estimate is for profits to the end of January 2022 to be between 5% and 10% ahead of the current year.

According to broker Morgan Stanley, that would generate profits below the current Bloomberg consensus estimate of around £485 million, so expect cuts to forecast of around 10%.  

Last month, JD purchased Shoe Palace for $325 million (£241 million), extending its US West Coast business. It also recently opened a JD flagship store in Times Square, New York.

Results for the current year to the 30 January are scheduled for 13 April.

ii view:

JD Sports operates both brick & mortar store outlets and over 15 localised trading websites. Its brands include JD itself, Size?, Footpatrol and Finish Line. The UK accounts for the lion’s share of sales at over 40%, then the US and Europe at just over a quarter each, with Asia Pacific the balance.  

For investors, ongoing pandemic-related temporary store closures are expected to continue dragging on performance. An estimated 2021 price/earnings (PE) ratio marginally above the general retail sector average also suggests the shares are not obviously cheap. 

But the migration of its customers online offers reassurance that it is battling the pandemic from a position of strength. Its track record for expansion and acquisition is also strong, helping its shares rise significantly over the last 10 years. In all, and allowing for the retailer’s strong long-term track record, JD looks to remain deserving of investors’ continued support.    

Positives: 

  • Diversity of product, brand name and geographical location
  • Net cash of £765 million as of 1st August 2020

Negatives:

  • Ongoing pandemic uncertainty
  • Possible Brexit trade disruption

The average rating of stock market analysts:

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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