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Higher US spending bolsters JD Sports’ bottom line

Full-year profit guidance is lifted by £200m
Higher US spending bolsters JD Sports’ bottom line

•  Acquisitions help to drive profits well above 2019 levels

• Company still battling for Footasylum approval

JD Sports Fashion (JD) is an unlikely beneficiary from the US government’s stimulus package. The Bury-based retailer’s stateside business generated more than half of pre-tax profit before exceptional items of £439.5m in the first six months - a seven-fold increase on the same (Covid-hit) period last year and 177 per cent higher than the level of earnings generated in 2019.
Acquisitions have helped. The company bought the 167-strong San Jose-based Shoe Palace chain, whose stores are based in the west and south of the US, for $325m (£357m) in December last year. It then added Baltimore-based DTLR Villa, whose 247 stores are largely in the east and north, for $495m in March, .

These two brands, which will continue to run independently, contributed £72.9m to group profits in the first half. JD Sports’ core UK and Ireland business also did well, despite new lockdowns. When stores were closed in the spring, it made 90 per cent of the sales it generated in the same period in 2019 from online sales alone. When stores reopened, pent-up demand drove sales to a higher level than 2019 on the same footfall. Its half-year adjusted profit was up 49 per cent on the same period in 2019.

Europe was more patchy, with Germany remaining in lockdown until mid-June, but France, Italy and the Netherlands trading more strongly and Spain and Portugal picking up on the back of increased tourism numbers. Like-for-like sales are currently about 10 per cent higher than 2019 and the company continues to make acquisitions, buying 60 per cent of a Polish company, Marketing Investment Group, for 345m million zloty (£64.7m). It has 410 stores and a presence in nine countries across central and eastern Europe. A Catalan sports retailer, Deporvillage, and a British casual wear retailer were also added, among others. The acquisition spree meant it shelled out £357m in the first half but after raising £456m it finished the period with net cash (excluding leases) of £995m, giving it plenty of firepower for more deals. 

The company also hasn’t given up on Footasylum, which it bought from JD Sports’ co-founder David Makin in 2019 for £90.1m, but the deal has twice been blocked by the Competition and Markets Authority. It will make representations before the CMA issues its final report next month. JD Sports' earnings were well ahead of analysts’ expectations and its upbeat guidance on the rest of the year (headline pre-tax profits should exceed £750m, £200m higher than its previous estimate) led broker Peel Hunt to move its price target to £13 a share, from £10.50 previously. Caution over further lockdowns prevented the company from paying an interim dividend, but it offered the carrot of a larger full-year dividend (2020: 1.44p per share) if positive trading continues. Buy.

Last IC view: Buy, 927p, 13 Apr 2021

JD SPORTS FASHION (JD.)  
ORD PRICE:1,151pMARKET VALUE:£ 11.9bn
TOUCH:1,151-1,152p12-MONTH HIGH:1,155pLOW: 684p
DIVIDEND YIELD:0.1%PE RATIO:28
NET ASSET VALUE:177p*NET DEBT:53%
Half-year to 31 JulyTurnover (£bn)Pre-tax profit (£m)Earnings per share (p)Dividend per share (p)
20202.5441.53.850.00
20213.8936522.20.00
% change+53+780+477-
Ex-div:-   
Payment:-   
* Includes £1.2bn in intangible assets, or 117p a share.