Shares in JD Sports (JD.) climbed more than 11 per cent after the company’s new boss announced ambitious plans to hit double-digit sales growth over the next five years. To do this, the fashion retailer will open as many as 1,750 new stores worldwide.
Speaking at a capital markets day, Régis Schultz told investors that the company would invest £500mn-£600mn a year into operations – the majority of which will go towards store expansion in North America and Europe.
Schultz claimed that JD’s “track record of disciplined investment and strong retail execution” leaves it well positioned for global growth. Whether these traits can help the company thrive under increasingly gloomy economic conditions is another matter.
Across the five-year period, management’s key objectives include achieving both double-digit revenue growth and double digit operating margin. It might sound like a tall order, but analysts appear optimistic.
“We believe the main difference between this cycle and the financial crisis (2008-09) is that the employment/wage backdrop is stronger, particularly for JD’s core, younger customer base,” RBC analysts wrote in a January note. “JD sees itself as a net beneficiary from wage inflation, a lot of which gets recycled back into the sector.”
The new goals for JD included cash generation from operating activities at £1bn but did not outline specific profit goals - using its previous lower capex plans (around £400mn a year), analysts saw pretax profits climbing steadily from £947mn in the 2022 financial year to just over £1bn in the 12 months ending January 2024. At the time of its last interim results, covering the six months to 30 July, the company had plenty of spending power - £1bn in cash and £700mn in an undrawn loan.
The positive response to the expansion plans takes JD's one-month share price rise to 38 per cent, leaving it down just 5 per cent in the past 12 months.
Bricks-and-mortar retail appears to be in the midst of a renaissance, with Primark owner Associated British Foods (ABF) planning to open 17 stores in Europe and the US this financial year. Marks and Spencer (MKS) is also going to invest £480mn into its UK store estate.
The resurgence of high street retailers may, however, have been exaggerated in post-Christmas trading updates. Strikes at Royal Mail, and resulting delivery delays, likely drove more consumers back to their local malls.
According to ONS data, the percentage of retail sales made online was 25.4 in December 2022. In December 2019, the figure was 21.3 per cent – indicating that more consumers are shopping online than they were even pre-pandemic.
