JD Sports said US stimulus measures helped drive a strong recovery in sales and reinstated profit forecasts for the year, sending its shares higher.
The athleisurewear retailer said it expected headline profit before tax to be “at least” £265m for the year to February 2021 — below the £446m reported for the year to February 2020, but well above current market forecasts of about £200m.
Already among the best performers in UK retail over the past few years, shares in JD Sports were up 6 per cent in early afternoon trading on Tuesday. They are up by more than half since March.
Peter Cowgill, executive chairman, said the $1,200 “economic impact payments” made to US citizens had acted as a powerful stimulus among the younger consumers that dominate its customer base.
At £834m, US sales were higher in the six months to August 1 than in the same period last year, and have been 50 per cent higher year on year in the period since late April.
Mr Cowgill said he was “feeling a lot more confident” about the $560m acquisition of Finish Line in 2018, considered a major risk at the time, and batted away suggestions that the group could suffer as brands increasingly sell direct to consumers.
Nike’s recent decision to drop some US distributors “if anything marginally strengthens our position”, he said.
Group first-half sales were £2.54bn against £2.72bn in the same period last year, while pre-tax profit before exceptional items was £61.9m, down from £159m.
JD Sports finished the period with net cash of £765m, but Mr Cowgill said this would not alter his robust stance on store rent negotiations.
“What people forget is that from 2005 to 2015 landlords imposed rent increases of 4-5 per cent a year,” he said. “It was a bubble and there is now a market adjustment.”
He added: “We will pay a fair and equitable rent. But we should not be carrying the weaker earners. Everybody should be paying the same rent for the same property.”
In order to force the pace of renegotiations, the group stopped paying rent on many stores while they were closed and pushed its Go Outdoors chain into administration.
The outdoor brands made a pre-tax loss of £37.2m — an improvement on last year’s £45.2m loss. Kate Calvert, analyst at Investec, said she had expected a much worse outcome.
JD Sports said a £200m benefit from revised payment terms granted by suppliers and deferred rent payments would unwind over the second half.
It will also incur capital spending on European distribution capacity to offset the possible impact of tariffs in 2021. Currently, European stores are supplied from the UK but this may result in tariffs being applied to those exports once the UK’s Brexit transition period ends.
“We want to devise a system so that European stock gets shipped direct to Europe as far as possible. It’s harder than it sounds,” said Mr Cowgill. He declined to specify the cost of the investment or the tariff impact.
Ms Calvert said the results were well ahead of forecasts and described the US performance as “phenomenal”.
“The business is more than capable of resuming its historic double-digit growth trajectory in the near future,” she added in a note to clients.
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