JD Sports says stores in the UK are likely to be closed until at least Easter

JD Sports says stores in the UK are likely to be closed until at least Easter

JD Sports Fashion Plc says it is confident group headline profit before tax for the full year will be significantly ahead of current market expectations and total at least GBP400m (U$539.6m).

In a trading update this morning (11 January), JD Sports said against a backdrop of further forced temporary store closures in many of its global territories, it is pleasing to report that demand has remained robust throughout the second half, including in the key months of November and December. 

Total revenues for the 22-week period to 2 January 2021 in the group's like-for-like businesses were more than 5% ahead of the prior year as consumers readily switched between physical and digital channels.

"The positive nature of the demand through the second half to date means that we are now confident that the group headline profit before tax for the full year to 30 January 2021 will be significantly ahead of the current market expectations, which average approximately GBP295m. It is now anticipated that the outturn for the full year will be at least GBP400m."

It added, however, it is clear that operational restrictions from the Covid-19 pandemic will be a material factor through at least the first quarter of the year to 29 January 2022.

"Whilst we are confident that we have the proposition to continue to attract consumers throughout this period, the process to scale down activity in stores and scale up the digital channels, often at extremely short notice, presents significant challenges. 

"Under normal circumstances, we would be confident that the results for the forthcoming year to 29 January 2022 would show a strong improvement on the current year. However, given the ongoing uncertain outlook with stores in the UK likely to be closed until at least Easter and closures in other countries possible at any time, our current best estimate is that the group headline profit before tax for the full year to 29 January 2022 will be 5% to 10% ahead of the current year."

Shore Capital analyst Greg Lawless notes JD Sports remains a best in class retailer.

"The company is tightly managed with excellent cash generation with tight stock and cost controls," he says. "Back in December, the company flirted with acquiring the mid-market UK department store chain Debenhams before walking away on execution and reputational risks and instead bought a bolt-on acquisition in the US called Shoe Palace, which is both earnings accreditive and gives the company new geographical territories in the important US market.

"It has navigated the Covid fog well this year, with a further upgrade, despite enduring its third lockdown in its core UK market. In our view, it has a strong customer proposition and best in class online fulfillment, which has set the business up well despite the Covid headwinds. On the back of another profit upgrade, we believe that the shares will run on again today. A theme we have been highlighting is that the strong are getting stronger in the fallout from Covid. JD with its strong balance sheet is well-positioned and a clear retail survivor with global ambitions."

Meanwhile, Alex Hardy, associate retail analyst at data and analytics company GlobalData, says JD Sports' latest results are particularly impressive given that there were widespread store closures throughout November and December.

"This improved performance throughout H2 FY2020/21 has allowed the group to outline anticipated headline profit before tax for the full year of at least GBP400m, significantly greater than current market expectations of around GBP295m, with the retailer's share price rising 4.7% in early morning trading as a result.

"A combination of a young core consumer base, who are more accustomed to online shopping, and a focus on sportswear and loungewear, has proven to be a fruitful strategy for JD Sports throughout the pandemic. As the situation worsened towards the end of 2020, with no imminent sign of improvement, consumers continued to invest in athleisure, and this is likely to still be the case in early 2021 given the lockdown now in place. That the retailer has successfully competed with online pureplays such as Asos to capture this demand is a testament to its online proposition. JD's mobile app is particularly engaging, with integrated social media content and an in-store mode, which makes the physical shopping process more seamless in a time where shopping is largely mission-based, while its JDX Unlimited delivery saver scheme has driven customer loyalty and enabled easy, affordable online consumption."

Hardy adds JD Sports remains wary for the coming year as Covid-19 hurdles will continue especially in the first half, with UK stores expected to remain closed until at least Easter, and international closures also possible at any time.

"However, the group still estimates headline profit before tax growth of 5% to 10% in FY2021/22. International expansion continues to be a priority for JD, and in December it acquired US retailer Shoe Palace, which will accelerate its rapid growth within this market even further. The overturning of the CMA's decision to prohibit the acquisition of Footasylum in November will have also provided a boost for the group, with the takeover now able to progress."

JD Sports, which made its second acquisition in less than a month last week with the purchase of UK menswear independent retailer Wellgosh, plans to provide its preliminary results for the year ended 30 January 2021 on 13 April.