JD Sports: much ado about nothing

Half-year numbers displayed little evidence of the timing effects on like-for-like sales growth, alluded to in the trading update. The group’s underlying retail business in the UK & Ireland reported 3 per cent sales growth, which Mr Small thinks is particularly impressive given the group’s double-digit like-for-like growth rate over the past three years.

Nor did margin pressure, which has hurt so many of JD’s peers, rear its head in the first half. Total gross margins were just 0.7 percentage points down on the comparable period last year, even though the lower-margin outdoor business has taken a bigger slice of the overall turnover since the acquisition of Go Outdoors in November last year.

The core UK business continues to benefit from expansion of the store portfolio and investment in the website. Online sales now represent 14 per cent of UK & Ireland net revenue (from 11 per cent last year). And 12 net new stores helped revenue rise by 27 per cent to £903m. But it’s the global expansion that has had the biggest impact on performance. A net 23 new stores in mainland Europe, as well as its first stores in Australia and additional shops in Malaysia helped overseas revenues up more than two-thirds to £464m. That means a third of JD Sports' turnover now comes from outside of these islands.

Using its “war chest” of cash, management has plans to open another 40 stores in the second half of the year to benefit from the huge demand for 'athleisure' wear. The renewed vigour in management’s outlook has given broker Peel Hunt the confidence to update full-year pre-tax profit forecasts by £10m to £285m, giving EPS pf 23.1p (from £275m and 22.3p in FY2016). Market expectations range between £268m and £290m, according to management.