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IN DEPTH: Record Results Crown JD Sports Fashion As "High-Street Star"

Tue, 16th Apr 2019 11:02


LONDON (Alliance News) - Analysts called JD Sports Fashion PLC the standout performer of the retail sector on Tuesday, as the company delivered a record performance leading to a doubling of revenue and 15% jump in annual profit.

The retailer said the strong set of results was achieved on the back of encouraging same store sales growth and contribution from recent acquisitions, despite challenges in the core UK market.

"JD Sports are in fashion as the company posted a 27% rise in full-year earnings to GBP488.4 million – a record high, and revenue jumped by 49% to GBP4.71 billion," David Madden, market analyst at CMC Markets UK, said.

"The firm is the standout performer of the retail sector, and given that the stock posted a record close yesterday, a large portion of the positive news might be already baked into the share price," Madden added.

JD shares were trading 3.9% higher at 552.80p each early Tuesday morning. The stock is up 57% in the past 12 months.

For the year ended February 2, the FTSE 250 listed sports fashion retailer posted pretax profit of GBP339.9 million, up 15% from GBP294.5 million a year ago. Revenue jumped 49% year-on-year to GBP4.72 billion from GBP3.16 billion, helped by contribution of Finish Line acquisition in the US.

Russ Mould, investment director at AJ Bell, said: "JD is living proof that parts of the retail sector is alive and well. Sales continue to soar as it has found the perfect ingredients to keep the tills ringing. It is engaging with customers by offering exclusive products and staying abreast of constantly changing fashion trends."

Mould added: "The acquisition of Finish Line opens the doors to the US market which is the largest market for sport lifestyle footwear and apparel. It also provides an opportunity to export JD's formula so that it can improve Finish Line's profits."

Selling & distribution expenses rose to GBP1.63 billion from GBP1.08 billion, while administrative costs were up to GBP253.6 million from GBP144.7 million.

Total like-for-like sales across JD's global Sports Fashion fascias, including online, grew by 6% with double digit growth in both Europe and Asia Pacific, the company said.

Operating profit in the Sports Fashion segment rose 22% to GBP365.8 million from GBP300.0 million, including a GBP26.6 million contribution form Finish Line.

JD's Outdoor business, however swung to a GBP4.3 million operating loss, versus a profit of GBP8.8 million a year ago, as trading was impacted by difficult weather.

Fiona Cincotta, senior market analyst at CityIndex, said: "JD Sports has beaten its own profit guidance with yet another standout performance that cements its status as a high-street star."

"Sales haven't grown at the expense of margins, indicating management is still applying tight price discipline despite the harsher retailing environment. The big question, though, is whether management can keep the good times rolling."

Gross margins narrowed only modestly to 47.5% during the year, from 48.4% the year prior. This was primarily due to the lower margins at its acquired businesses.

During the year, JD bought Finish Line in the US, "significantly" extending its global reach, with the trial of the JD fascia in the new shops delivering "encouraging early results".

Furthermore, since the start of the new financial year, the retailer has already agreed to acquire minor peer Footasylum PLC for GBP90 million and bought Pretty Green Ltd out of administration for GBP1.5 million with further GBP1.8 million of debt.

Cincotta continued: "Nothing spoils a good run in business like a bad acquisition and JD Sports has been expanding its risk profile a lot of late."

"It's too early to tell, of course, if management has put a foot wrong with moves on Footasylum and Pretty Green, neither of which was performing well when they were snapped up."

She concluded: "There's every possibility that Peter Cowgill [chair] and his crew can successfully sprinkle the JD Sports magic on these businesses. But investors will want to see more meaningful evidence that they can be turned around before adopting the same level of enthusiasm for what still look like surprisingly risky deals."

As a result of the strong set of results, the retailer increased its total dividend by 5% to 1.71 pence per share from 1.63p a year ago. It proposed a final dividend of 1.44p, up from 1.37p in the comparative year ago period.

On making the dividend move, JD explained in a statement that: "We continue to believe that it is in the longer term interests of all shareholders to keep dividend growth restrained so as to maximise the available funding for our ongoing development opportunities."

Looking ahead, the company said that despite the continued uncertainty arising from the standstill in the UK's exit from the European Union, it remains "confident in the international potential" of its proposition.

"Given the significance of Easter trading to the overall result of the group and the change in the timing relative to last year, any announcement of like for like sales performance in the year to date would lack precision. However, we are pleased with the continued underlying positive performance of the group and are excited by the major developments ahead," Cowgill said.

By Elena Cherubini; elenacherubini@alliancenews.com

Copyright 2019 Alliance News Limited. All Rights Reserved.

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