- Shares rally after months of losses
- Sales advance despite concerns over US
- Full-year profit forecast maintained
Investors in specialist retailer JD Sports Fashion (JD.) breathed a large sigh after the firm reported an improvement in sales in recent weeks and reiterated its full-year earnings guidance.
Having lost close to a third of their value since topping 180p in February, the shares surged 7% to 142p taking them to the top of the mid-cap leader board.
WHAT DID THE COMPANY SAY?
After disappointing trading updates from US sports and fashion retailers such as Dick’s Sporting Goods (DKS:NYSE) and Foot Locker (FL:NYSE), and a rare earnings miss from footwear giant Nike (NKE:NYSE), shareholders in the ‘king of trainers’ were understandably apprehensive ahead of its interim results.
In the event, the UK firm looks to have weathered the six months to the end of July relatively well with group sales up 8.3% to £4.78 billion.
The Premium Sports Fashion business, which accounts for 75% of group revenues, posted sales growth of 17% to £3.59 billion, driven by a 32% increase in Europe, an 18% increase in North America and an 8% increase in the core UK and Irish operations.
Growth was largely organic, although the group agreed two acquisitions during the period – Groupe Courir in France, and the minority stake in Iberian Sports Retail Group in Spain – which once completed should add to revenue and earnings in the second half.
Investors were further encouraged by the news sales in the seven weeks since the end of July were up 10% on an organic basis, while the firm’s store-opening plan remains on track, and despite the tough economic environment earnings for the full year are still seen in line with market expectations.
‘We have delivered a strong first half to our financial period with organic sales growth of 12% and profit on track for the full year’, commented chief executive Regis Schultz.
‘Looking ahead, our core consumers remain resilient in the face of the ongoing global macro-economic challenges. The JD brand continues to strengthen its global presence, supported by our strategic partnerships with much-loved brands and our strong balance sheet.’
WHAT DO THE ANALYSTS SAY?
‘It’s a tough place for consumer-facing companies given the uncertain macro backdrop. Consumer confidence remains fragile even though there are signs of a slowdown in the rate of inflation’, reflected AJ Bell investment director Russ Mould.
‘JD Sports’ results still show a business in good health. Sales, profits and dividends are all up, it is investing in the business to support geographic growth, and it is finding new ways to keep customers happy and on its side.’
Eleanora Dani at Shore Capital described the results as ‘a testament to the company’s strong operational efficiencies’, noting that ‘despite investors' concerns due to negative read-across from US peers, the US market continued to perform well’.
‘Given the challenging macro-economic environment, the steady outlook speaks volumes about the resilience of JD Sports' core consumers and the strength of its strategic initiatives.’
Dani also flagged the 130% increase in the interim dividend, albeit to just 0.3p per share, and suggested the firm’s strong cash position ‘offers considerable flexibility for capital allocation’, with increased shareholder returns a possibility.
Disclaimer: Financial services company AJ Bell referenced in the article owns Shares magazine. The author of the article (Ian Conway) and the editor of the article (James Crux) own shares in AJ Bell.
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