JD Sports, what’s your secret?


It seems JD Sports Fashion PLC (LSE:JD.) can’t go wrong, with shares surging again on the back of a set of record interims.

The FTSE 100 retailer delivered bumper profits of GBP439mln, from GBP61.9mln in 2020 and GBP158mln the year before.

READ: JD Sports eyes huge full-year profit jump after record interims

The group has banked on the athleisure trend but has also been in the right place at the right time.

Signature trainers and sleek leggings have been trendy for a few years now, but they were given an extra boost by the pandemic as people focused on (fashionable) comfort during the various lockdowns.

And even though most of us are getting out of the house more, casual styles remain in vogue since homeworking is here to stay.

“Partly the business has benefited from wider trends around athleisure, as the lines between what younger people wear to work out, go out and stay in become more blurred,” said AJ Bell investment director Russ Mould.

“However, it has been razor-sharp in its focus on its customers, delivering what they want, when they want it and how they want it.”

US focus is key

JD Sports has also done well in its US expansion with the acquisitions of Shoe Palace and DTLR. That’s the segment that has been driving the strength, according to house broker Peel Hunt.

“The decision to go to the US in 2018 is now looking like a complete game-changer for the group, both in terms of profit contribution and aiding brand relationships,” analysts said.

The market on the other side of the Atlantic is huge and it’s been helped by the government’s stimulus cheques, which many young people have spent in stores.

Plus, there haven’t been as many restrictions as in Europe over the summer, so footfall hasn’t suffered as much.

On top of this, the retail powerhouse is headed by shrewd management that has been focusing on tight cost control and managed warehouses to sell stock online when shops were closed.

But it’s not all roses, of course, so the question is whether the US arm will offset issues in other countries, especially as the stimulus cheques will not continue into the winter months.

“Ongoing pandemic restrictions, and a shift in shopping behaviour has meant footfall in stores remains weak in many key markets. Despite its slick operating model, and investing big in its logistics operation, it’s not immune to supply chain challenges,” said Susannah Streeter, senior investment and markets analyst at Hargreaves Lansdown.

“The administrative burden of Brexit has also disrupted performance in Western Europe which it is hoping to solve temporarily through a short-term lease on a huge online order processing factory in Lille. Supply chain problems have caused a particular headache for the company’s outdoor brands with delays in bike and cycling accessories in particular, leading to shortfalls in stock.”

“It’s because of these issues, that JD is withholding an interim dividend, with suggestions of a larger full-year dividend. There is a risk that with such challenges playing out, a game of two halves could materialise with a weaker performance in the current six month period,” she added.

JD Sports hasn’t yet solved the Footasylum headache, as the UK Competition and Markets Authority wants to block the acquisition two years after it completed.

We’ll hear more about it next month when the competition watchdog publishes the final report – potentially weighing on shares.

For now, the stock remains a favourite for many retail watchers and jumped 8% to 1,130.5p on Tuesday at noon.


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