JD Sports: FTSE 100 retailer beats analyst predictions in a ‘volatile’ market

JD Sports has reported good global sales growth in the second quarter of 2024, smashing analysts’ expectations and leading to the share price rising by over six per cent in early trades.

Like-for-like sales at the FTSE 100 firm rose 2.4 per cent in the 13 weeks to 3 August 2024 or 0.7 per cent in the first half. Organic sales rose 8.3 per cent or 6.4 per cent for the first half of the year.

The company said the trading improvement was “driven primarily by the strength of our multi-brand operating model and softer comparatives with the previous year.”

Growth was strongest in North America, where sales grew 5.7 per cent on a like-for-like basis. In Europe, sales growth came in at three per cent.

Growth was slightly softer in the UK, with like-for-like sales down 0.8 per cent compared to the prior quarter and down three per cent year on year in the first half.

Company chief executive Régis Schultz attributed the fall to a “late summer” in the UK, which led to weaker sales in apparel.

“Apparel doesn’t benefit from a later summer – people buy when products are already on sale,” he said on an earnings call.

“The UK is a more mature market for us… It’s a very different game,” he added. “We don’t have a lot of room to gain market share.”

The company said its gross margin fell 0.3 per cent to 48.4 per cent due to the “volatile” market, with the decline mainly seen in apparel and online.

Earlier this month, shares in the sportswear retailer slumped more than five per cent after stockbroker Deutsche Numis downgraded its stock rating and questioned the retailer’s ability to generate cash.

Numis had forecast the firm’s like-for-like sales growth to be flat.

Shares in JD Sports haven’t quite bounced back from the downgrade yet and hover about 4p below their early-August high.

“I am pleased to report like-for-like sales growth of 2.4 per cent and organic sales growth of 8.3 per cent in the second quarter, demonstrating the strength and agility of our multi-brand model,” Schultz said in a statement.

“In particular, we saw double-digit organic sales growth in North America and Europe, supported by the continued success of our JD store rollout programme.

“We completed the acquisition of Hibbett just before the period end and we look forward to its contribution to the growth and development of our US business in the coming years.”

The company is “on track” to deliver profit within its full-year guidance of £955m-£1,035m, Schultz added.

During the first half, JD Sports opened 85 new stores, which along with the Hibbett acquisition and the “ongoing disposal of non-core stores”, meant the company ended the first half with 4,506 stores, up by 1,189 from the start of the year.  

Mamta Valechha, consumer discretionary analyst at Quilter Cheviot said: “JD Sports benefitted from easier comparisons and the summer of sports with the Euros and Olympics dominating the calendar.

“We should see further growth following the acquisition of Hibbett, enhancing JD Sports’ exposure in the South-East and Mid-West of the US. This deal has been completed ahead of schedule and is highly complementary to the JD Sports business.

“Most importantly, management reiterated its full year guidance of 6-9 per cent organic growth, highlighting that while JD Sports has been hit earlier in the year with weaker consumer spending, it is likely to bounce back due to innovation and the Hibbett deal bringing growth to the bottom line.”

The share price “does not currently reflect” the strength of JD’s market position and future growth potentials, Valencha added.

Peel Hunt analysts called the results “somewhere between reassuring and good”.

Analysts said the “very pleasing update” indicated that JD “continues to win market share, with its global presence making it the preferred partner to the global brands… the shares are seriously undervalued in our view.”

Peel Hunt reiterated a “Buy” recommendation.