Shares in JD Sports Fashion (JD.) jumped 4.5% to 889p on Monday after the trainers-to-tracksuits purveyor materially upgraded profit guidance following another strong Christmas showing.
Guided by executive chairman Peter Cowgill, the sports fashion retailer is now confident headline pre-tax profit for the year to 30 January 2021 will come in ‘significantly’ ahead of current market expectations of around £295 million to reach ‘at least £400 million’.
DEMAND REMAINS ROBUST
Despite a backcloth of further temporary store closures in many of its global territories, demand for JD Sports’ products has ‘remained robust’ throughout the second half, including in the peak months of November and December, which broker Shore Capital regards as ‘a stellar performance given the lockdown restrictions as a non-essential retailer’.
Group like-for-like sales grew by 5% year-on-year over the 22 weeks to 2 January 2021 as shoppers ‘readily switched between physical and digital channels’, according to digital winner JD Sports.
COVID CAUTION
Under normal circumstances, JD Sports would be confident of delivering a strong improvement in profits for the year to 29 January 2022, but it is understandably cautious in terms of the outlook given the headwinds arising from Covid-19.
Management’s ‘best estimate’ is that full year 2022 pre-tax profit will be 5% to 10% ahead year-on-year with UK stores likely to be closed until at least Easter and closures in other countries possible at any time.
THE EXPERTS’ TAKE
‘In our view, JD Sports remains a best in class retailer, amongst our universe of general retailers,’ commented Shore Capital.
‘The company is tightly managed with excellent cash generation with tight stock and cost controls. Back in December the company flirted with acquiring the mid-market UK department store chain Debenhams before walking away on execution and reputational risks and instead bought a bolt-on acquisition in the US called Shoe Palace, which is both earnings accreditive and gives the company new geographical territories in the important US market.’
AJ Bell investment director Russ Mould explained that JD Sports has ‘a very clear idea about who its customer is and what they want - namely trainers and so-called “athleisure” gear which can be worn for working out and socialising (in more normal times) as well as hanging out at home.’
However, he pointed out: ‘A short-term concern will be that its youthful customer base will be particular exposed to the mounting jobs crisis in the UK, given they are probably more likely to work in hospitality or other retail businesses.
‘Longer term, while JD is still seen in a positive light by major sporting brands like Nike and Adidas, the former, in particular, is shifting to a more direct-to-consumer model, selling more product through its own website. For now though, JD is still a valued retail partner.
‘Given this encouraging update, investors will be even more relieved management did not take on the distraction of buying failing department store Debenhams before Christmas. The recent bolt-on acquisition of Shoe Palace in the US looks a much better fit.’
