After being heavily punished in the summer for only delivering in-line guidance for its current financial year, retailer JD Sports (JD.) is back in the market’s good books as it uses first half numbers to signal its full year will now be at the upper end of expectations.
The shares shoot up 9.4% to 372.6p. The behaviour of the share price reflects JD’s status as a ‘growth stock’ which needs to keep over-delivering in order to sustain the kind of momentum which has seen its shares advance nearly 400% in the last three years.
BACK ON THE BEAT
Highlights from the latest results include revenue up 41% to £1.4bn and profit up 33% to £103m. The company has endured some margin pressure thanks to weaker sterling.
Finance director Brian Small tells Shares the ‘athleisure’ trend remains ‘a global phenomenon supported by the marketing might of Adidas and Nike’.
Small says there has been no signs of pressure on its customers’ spending and notes they ‘have gone on spending in previous downturns in the economy’ adding it sells at a price point which is ‘aspirational but affordable’.
However, reflecting the global nature of this market, JD is focused on overseas expansion and non-UK sales now represent around 30% of the business, up from just 10% seven years ago.
With £200m of cash on the balance sheet the firm can fund its international ambitions, although Small admits that in Europe ‘finding the right space is probably more difficult than it is in the UK’ as ‘most of the shopping is still done on the high street’.
WHAT THE ANALYSTS ARE SAYING
Cantor Fitzgerald analyst Mark Photiades stays at ‘buy’ with a 500p price target. He says: ‘The core UK Sports division is carrying strong momentum as it continues to advance its already best in class sports apparel and footwear offer. We continue to see significant opportunities for further expansion in Europe and beyond.’
Panmure Gordon’s Peter Smedley is also a buyer with a 420p price target. ‘In short, these results demonstrate JD is assuredly becoming a credible international growth story, with multiple drivers to propel profits higher, which has positive implications for sentiment, forecasts and valuation.’