Interactive Investor

JD Sports shares race to record high after results

14th September 2021 08:25

Richard Hunter from interactive investor

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Despite plenty of headwinds, the sports retailer has been a phenomenal performer. Our head of markets has the latest. 

Exceptional, if temporary, tailwinds from the US businesses have propelled JD Sports Fashion (LSE:JD.) to report record profits for the half-year.

The US remains the powerhouse of growth for JD. Government support in the form of cheques to individuals and a relative lack of lockdown restrictions were driving factors, but the group’s increasing presence under various trade banners is also underpinning progress. The previously successful acquisition and integration of Finish Line is now providing meaningful growth, while the more recent acquisitions of Shoe Palace and DLTR have also made significant contributions in the period.

The US pre-tax profit contribution before exceptional items of £245 million compares to a previous figure of £73 million and, while JD recognises the absence of stimulus in the current second half, it nonetheless remains optimistic on prospects for the full year.

In the UK, meanwhile, the corresponding pre-tax number of £171 million for the 26 weeks ended 31 July compares to £52 million a year before. The strength of JD’s online capability came into its own during the last lockdown in the first quarter, with a strong retention of sales achieved despite store closures. This was then complemented by the release of some pent-up demand in stores as restrictions were lifted.

With revenues ahead by 53% and with the pre-tax profit number coming in at £365 million versus a previous £41.5 million, the company could be forgiven for basking in the sunshine.

However, JD retains a cautionary stance. Apart from the fact that the stimulus in the US will not be repeated, the company is mindful of the possibility of further restrictions being imposed on the back of the Delta variant. 

In addition, the supply chain challenges which are currently affecting so many industries are also in play, with the previously frictionless trade with the European Union now subject to delays and restructuring. At the same time, even where stores have reopened, levels of footfall have not returned to previous levels given the limitations following the “pingdemic”, where shoppers have either been forced to isolate or have chosen not to venture to the high street just yet.

With these potential headwinds in mind, JD has chosen not to pay an interim dividend, although depending on performance, there may be a larger full-year payment by way of compensation to income-seeking investors. 

Meanwhile, the ongoing saga with the Competition and Markets Authority (CMA) regarding the proposed acquisition of Footasylum remains a drain on management focus, although the matter should draw to a close following the final report from the CMA in October. 

Even so, the group continues its relentless progress, as evidenced by a share price rise of 33% over the last year, as compared to a gain of 17% for the wider FTSE100. Over the last three years the price has more than doubled, adding 110% with no discernible lessening of support from investors. Indeed, the market consensus of the shares as a ‘strong buy’ reflects rosy prospects for the future, especially with JD’s burgeoning US success.

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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