Shares in the self-styled ‘Undisputed King of Trainers’ JD Sports Fashion (JD.) jumped 7.2% to 776.5p on Tuesday, despite the retailer posting a first-half profit fall caused by the lockdown, as investors welcomed the reinstatement of full-year guidance and an upgrade to boot.
JD Sports Fashion has seen an ‘encouraging’ performance since stores reopened, and though management is mindful of weak footfall, uncertain consumer confidence and the potential for further Covid-related operational restrictions, the sports fashion purveyor expects to deliver a full-year headline profit before tax of ‘at least £265 million’, a significant step up from the Bloomberg consensus of roughly £165 million.
ONLINE COSTS WEIGH
For the 26 weeks ended 1 August, group revenue was down 6.5% year-on-year to £2.54 billion as the impact of the retail lockdown weighed on the retailer’s results.
Pre-tax profit plunged 68% to £41.5 million, as JD Sports also had to absorb the additional costs associated with the shift online during the temporary store closures, although period end net cash amounted to a very healthy £765 million.
CLEAN SET OF HEELS
Over the past decade JD Sports has been the star turn in the retail sector. It has shown rivals a clean set of heels after identifying and targeting a youthful demographic with disposable income, and tapping into the athleisure trend of wearing trainers and tracksuits to socialise, work and work out.
‘Agreements with sought-after brands like Adidas and Nike have helped reinforce its position,’ explained Russ Mould, investment director at AJ Bell. ‘These strengths were to the fore as it only reported a 7% drop in sales year-on-year in the six months to 1 August.
‘When you consider this performance coincided almost exactly with the onset of the coronavirus pandemic that is a notable achievement and has the coda that full-year profit guidance is above expectations. The simple fact of restoring guidance in itself will reassure the market.’
Nevertheless, Mould pointed out that what follows the current financial year is open to question. Part of JD Sports Fashion’s target market ‘could be vulnerable to unemployment, particularly assuming the furlough scheme in the UK ends as planned in October. But with the company’s clear retail expertise and a very strong balance sheet it should be a sector survivor.’
Shore Capital insists JD Sports remains ‘well managed with tight stock and cash controls and good cash generation reflected in its strong balance sheet. We continue to highlight the international opportunity, particularly in the US with Finish Line, where there remains a significant opportunity to grow the gross margin with the introduction of fashion clothing line.’
