JD Sports half-year results show it has a chance of extending an impressive run of outperforming Britain’s challenged clothing sector.
With JDS shares having risen almost 160% over 18 months by the middle of the year, there were compelling reasons to expect them to slack off, regardless of the group’s excellent record of long-term free cash flow generation. Indeed, JD Sports shares were down 35% from April’s all-time high by Monday’s close, as some investors sought out peers that had risen less. But after Tuesday’s report of record first-half profits, JDS stock leapt by as much as 10.5%. Evidence justifying a retreat of the shares has after all been scant. It is not that JDS’s story—carving out a resilient discretionary niche—is coming off the boil. Rather it is concerns over the strength of high street consumption amid a lack of wage growth and resurgent inflation that have weighed.
Core pre-tax profit leapt 33% to £102.7m in the 26 weeks to the end of July with market-leading like-for-like sales growth in core UK and Ireland stores of 3% on a constant currency basis. Europe was even better with a 7% rise. In the context of the past three years, these rates are a little slower, given a compounded rise in the UK and Ireland over the period of about 50%. The offset is that JD websites now contribute 13.7% of total net sales and rising (up from 11.1% in H1 2016).
Investor calculus also needs to include the rate at which JD is adding store space. 35 new stores were opened in the period across most JD territories, including 12 conversions in Portugal. The group expects to maintain that momentum in mainland Europe in the second half. This should underpin confidence in guidance that full-year profits will come in towards the upper-end of market expectations between £268m-£290m, up as much as 18.5% on the year.
If it scores, JD would have continued to largely sidestep the shaky, Brexit-tinged consumption outlook that has depressed clothing and attire sales at rivals like Next Plc., Marks & Spencer and others. As suggested earlier, JD has not been entirely immune from the impact on sentiment. On Tuesday, its shares snapped well off the day’s best levels after Britain’s Consumer Price Index showed inflation reached a five-year high in August, driven by the biggest rise in clothing prices since the index was launched in 1997.
With focus in the sector moving on to Next, which will provide hints on current trading with its own half-year results on Thursday, the watch is on for further signs that JD Sport is winning market share at the expense of dominant rivals. It has already overtaken its closest competitor Sports Direct as the UK’s most highly-valued sportswear name. Even confirmation that Britain’s highest-volume clothing retailer, Next, is recovering is likely to buttress JD Sports further.
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