JD Sports Fashion PLC – Reduced footfall partially offset by stronger conversion

JD Sports Fashion PLC (LON: JD.) is a FTSE 100 listed sports fashion retailer. It deals in multi-branded sports fashion and outdoor clothing along with footwear and equipment.

The Company is expected to announce the interim results on 8 September 2020.

Recent News

23 June 2020: The Company has decided to restructure the Go Outdoors business and appointed Daniel Butters of Deloitte LLP and Michael Magnay as Joint Administrators. As a consequence of COVID-19, Go Outdoors business was no longer financially viable and would have absorbed capital at an unsustainable rate.

Financial Highlights (for the 52 weeks ended 1 February 2020)


(Source: Company Website)

As on 7 July 2020, the Company released the full-year results for FY20 and reported that the revenue increased by 30% to £6,110.8 million (FY19: £4,717.8 million). The revenue growth was majorly driven by strong total like for like sales growth in global Sports Fashion fascias. Similarly, the Group EBITDA surged to £979.8 million (FY19: £488.4 million), reflecting growth of around 100% year-on-year. Further, the reported profit before tax increased to £348.5 million (FY19: £339.9 million). The Group also made significant development internationally by a net increase of 52 JD stores across mainland Europe, 18 JD stores in the Asia Pacific region, and expanded to 11 stores in the United States. At the end of FY20, the Company had net cash of £429.9 million (FY19: £125.2 million), which reflected a focus on robust stock management disciplines and cash generative retail operations. During the year, the Company also extended the principal syndicated bank facility, with total commitment of £700 million, expiring on 6 November 2024.

Share Price Performance


1-Year Chart as of 7 August 2020, before the market close (Source: Refinitiv, Thomson Reuters)
 

JD Sports Fashion PLC’s shares were trading at GBX 665.20 on 7 August 2020 (before the market close at 3.00 PM GMT+1), up by 1.50% against the last day closing price. Stock 52 week High and Low were GBX 890.00 and GBX 274.70, respectively.

From the technical standpoint, 14-day RSI is currently in an overbought zone, which means there is a likelihood for a short-term correction in the stock price.

 
Valuation Methodology

  

Risk Assessments

The Competition and Markets Authority has imposed a penalty of £300,000 for breaching obligations regarding the takeover of Footasylum. Due to Covid-19 pandemic, footfall in malls and shopping centres is quite weak since consumers remain apprehensive about the risks associated with densely occupied enclosed spaces. Therefore, the reduced footfall can affect financial performance and disrupt the conversion cycle. Due to the supply chain disruption, the rising operating cost is also a major concern. Furthermore, Brexit can also have a consequence over tariffs, supply chain, exchange rates and consumer demand.

Conclusion
The Company has a market leading multi-channel proposition with a deep emotional connection with consumers. The Company had a positive trading in the early weeks of FY21 prior to the emergence of COVID-19; thus, the Group believe in regaining the momentum once the consumer behaviour and footfall are back on track. However, COVID-19 has constrained the short-term progress, and the significant losses in the Go Outdoors business can reflect in the FY21 results.

Based on the above rationale and risks associated, we recommend investors to keep a “Watch” on the stock at the current price of GBX 665.20 (as on 7 August 2020, before the market close at 3.00 PM GMT+1), with support from few catalysts (footfall and Go Outdoors restructuring) needs to be evaluated at a later stage. 
 
*All forecasted figures and Peer information have been taken from Refinitiv, Thomson Reuters.
*Dividend Yield may vary as per the stock price movement.

Disclaimer

PLEASE BE ADVISED THAT YOUR CONTINUED USE OF THIS SITE OR THE INFORMATION PROVIDED HEREIN SHALL INDICATE YOUR CONSENT AND AGREEMENT TO THESE TERMS.
References to ‘Kalkine’, ‘we’, ‘our’ and ‘us’ refer to Kalkine Limited.
This website is a service of Kalkine Limited. Kalkine Limited is a private limited company, incorporated in England and Wales with registration number 07903332.
The article has been prepared for informational purposes only and is not intended to be used as a complete source of information on any particular company. Kalkine is not responsible for material posted on this website and does not guarantee the content, accuracy, or use of the content in this site. No advice or information, whether oral or written, obtained by you from Kalkine or through or from the service shall create any warranty not expressly stated.
Kalkine do not offer financial advice based upon your personal financial situation or goals, and we shall NOT be held liable for any investment or trading losses you may incur by using the opinions expressed in our publications, market updates, news alerts and corporate profiles. Kalkine does not in any way endorse or recommend individuals, products or services that may be discussed on this site. You should discuss your portfolios and the risk tolerance level appropriate for your personal financial situation, with a professional licensed financial planner and adviser.