JD Sports picks up speed in second half

Total like for like sales growth in the Sports Fashion for the 48 weeks to 5 January topped 5%, up from 4% in the first half of the year, while gross profit margins were maintained at prior year levels.

The UK’s performance was positive, while Europe produced double-digit LFL store growth and the US generated growth of 5%, according to analysts.

Profit margins were supported by management's avoidance of short-term discounting and directors expect headline profit before tax for the year to 2 February 2019 will be at the upper end of the £325-352m range of analyst forecasts.

"Given the well-publicised challenges within the wider UK retail market, we are pleased with this trading result which further demonstrates the robust foundations of our dynamic multibrand multichannel proposition across our core market and our capacity for further growth across an expanding geographical reach," the company said.

Overseas developments were a theme in the period, with the first five JD shops opened in the US, including the conversion of three Finish Line stores. The ribbon was snipped on the first two stores in Thailand too.

Directors said it was "too early" to draw conclusions the US but were "encouraged" enough to extend the initial trial of the JD fascia with the conversion of up to 15 further Finish Line stores planned for the first half of 2019.

Finish Line also delivered improvements in sales and profit margin compared to the previous year.

There were extra costs from the work to extend the Kingsway warehouse in Rochdale, with new automation equipment due to complete before the summer,

JD shares jumped more than 6% in early trade to 421.3p.

Broker Peel Hunt noted that first-half LFL growth has picked up from about 4% to over 6% in the second, which is "far from the average trend for a European retailer right now", with footwear and clothing, menswear and womens all moving forward in equal measure.

Peel Hunt gleaned that UK LFL shop growth improved but is still "very slightly negative" with a "strong online showing means that overall it’s positive", while Europe store LFL was said to be is now in excess of 10%, with more from online.

"This is serious market share gain: the offer and the store ambience are clearly working in these territories. Crucially, margins have not been sacrificed to deliver this sales growth: it was an average promotional period and gross margins are flat."

Positive LFL at Finish Line are "words that haven’t appeared very often together in a sentence in recent years", said analyst Jonathan Pritchard, noting that sales were ahead around 5% even without discounting as gross margins rose roughly 100 basis points.

"The strength of Nike’s recent performance has been useful (c70% of Finish Line’s offer is Nike), but JD is clearly doing something right in general since takeover."

Greg Lawless at Shore Capital said he expects the consensus forecast to move up from £345m, with the bottom end of the range to move up to circa £345-£350m.

"We see this as a good absolute and relative trading update showing the depth of JD’s multi-brand and multichannel proposition; there will not be many UK retailers showing earnings upgrades this January, in our view. JD remains a tightly managed company with good cash generation, international expansion and good growth prospects," he said in a note to clients on Monday morning.