J D Sports Full Broker Note........15 Sep 2017 13:58
Broker note here on JD. J.D Sports. Looks VERY Bullish.
<b><u>Peel Hunt.</b></u>
<b><i>JD’s H1 performance is ahead of expectations and we are
upgrading. Including online sales (now nearly 14% of JD’s sales),
LFL remains the envy of most retailers, and profit delivery is
strong, with core margins flat despite various headwinds. Go
Outdoors has started well within the JD stable and we expect
further strong progress from each silo in H2. The shares have
been wrongly derated due to concerns from the US and slowing
athleisure momentum. Today’s numbers show that there is
plenty more running in the JD legs yet and we expect a strong
bounce back from 13x PE.
£102.7m of PBT. We were forecasting around £93m, so a £100m+ result was a decent outcome against that number: it sets up a nice upgrade (essentially we are keeping our H2 forecast unchanged and just adding the £m beat to FY numbers). In-store LFL in the core UK JD business was 3% against an eye-wateringly tough comparative. In Europe, the LFL number was 7%, another fine effort given last year (Holland was the toughest market in this half, things were marginally more bearable in Germany). Both of these LFL numbers do not include online sales: they are now 13.7% of UK/Ireland sports fashion sales (up from 11.1%): had LFL been included online, it would have been 6% in the UK and 10% elsewhere. Both of which are striking numbers and on top of the material volume growth that we have seen in the last few years, it gives JD a very strong bargaining position with suppliers. The gross margin was down by just 30 bps in the JD fascia, a good effort given the headwinds, and the net margin was flat, despite the living wage being a factor again. All in all, it was a very strong showing from the core business and we expect continued in-store and online growth in H2, despite the tough comp again. Another 40 stores should open in the period and the pipeline of stores and good people to run them is very much intact.
Outdoors into profit. Blacks and Milletts’ performances improved, showing LFL growth and lower losses, and the contribution of Go Outdoors ensured that the silo was in the black. The business is starting to work as one: it’s early days but the buying teams and operations units have begun the discussion on how to move forward. It will be a while before the systems are conjoined, but JD’s increased scale in the space should bring about a stronger performance in time A £10m upgrade. It's not difficult to see how our upgrade could be too conservative. JD's trading form remains good across Europe , SUR Dutch losses will reduce in H2 and outdoors should make progress again. However, it's probably right to be a touch cautious given the wider economic background. We certainly don't think the trend towards athleisure is anywhere near played out, and the recent weakness means the shares can now be
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