Shares in JD Sports Fashion (JD.) topped the FTSE 100 on Tuesday, jumping 7.5% to £11.28 after the trainers-to-tracksuits retailer reported record first half results and upgraded full year headline pre-tax profit guidance to ‘at least £750 million’, up from the previous guidance of ‘no less than £550 million’ issued in July.
With management cautious about the potential for further trading restrictions, the retailer passed the interim dividend, although JD Sports has a bumper £995 million net cash in the coffers and hinted at a ‘potentially larger’ full year dividend to follow.
SEVENFOLD PROFITS SURGE
For the half to July 2021, JD Sports’ sales sprinted 53% higher to £3.9 billion, leading to a sevenfold surge in adjusted pre-tax profit to £439.5 million.
The retail star turn capitalised on favourable market conditions in the US, supported by the second round of fiscal stimulus introduced by the Federal Government in March and with sales boosted by the recent Shoe Palace and DTLR acquisitions.
And in the UK, rapid online sales growth was delivered in the first quarter while its brick and mortar stores were temporarily shuttered, and JD Sports then profited from strong pent-up demand after its stores reopened.
Executive chairman Peter Cowgill insisted his charge continues to demonstrate ‘outstanding resilience’ in the face of numerous challenges arising from the continued prevalence of the pandemic in many countries as well as ‘widespread strain on international logistics and other supply chain challenges’.
JD Sports is also having to contend with ‘materially lower levels of footfall into stores in many countries after reopening and the ongoing administrative and cost consequences resulting from the loss of tariff free, frictionless trade with the European Union.’
Nevertheless, he is ‘generally encouraged’ by JD Sports’ performance in the first few weeks of the second half, though ‘retail footfall remains comparatively weak in many countries’.
THE EXPERTS’ VIEW
‘Today’s short statement should reassure investors that the group remains on track as it delivers a year of good growth in revenues and earnings,’ said Shore Capital.
The broker also highlighted that ‘the potential acquisition of Missguided (reported by Sky News on Sept 8) is a potential game-changer, as it could reflect JD’s growing diversification into broader fashion.’
AJ Bell investment director Russ Mould commented: ‘The next step in the acquisition strategy may be to step out into the broader fashion market amid reports of a bid for popular online women’s fashion brand Missguided.
‘There are risks facing the business. Some of its most important brands like Nike and Adidas are looking to expand how much they sell direct to consumers and an economic downturn or widespread unemployment could crimp consumer spending.
‘Footfall is already waning after a post-lockdown spurt and the company is being hit by supply chain issues like many other businesses. But based on recent history, few would bet against JD Sports navigating these issues successfully.
‘Suddenly the potential blocking of its acquisition of Footasylum, recently announced by the competition authorities, is looking like the merest of slips for this hugely impressive operator.’