Sportswear retailer JD Sports’ primary customers are young and obsessed with the latest brands.
Jason Alden/Bloomberg
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The retail sector has been hit hard by rising inflation, declining consumer spending and fears of a possible recession.
The Dow Jones US Retail Index is down 19% this year, and so is Europe. The STOXX Europe Total Market Retail Index fell 28.7%.
However
JD Sports Fashion
(Ticker: JD.UK) has a track record of success during recessions. Nike, New Balance, The North Face, and
under armor
— Stock prices are estimated to more than double, which could buck the latest trend.
Shares have fallen 25.6% to £1.34 ($1.61) over the past six months, but broker analysts
Invetec
Up 123% to £3.investment bank
peel hunt
The target price is £2.50.
JD Sports delivered solid positive underlying sales growth in 2009, according to broker Berenberg analyst Graham Renwick. This was during the global financial crisis, the toughest macro period in the company’s history.
In a recent note, he said JD Sports was the top performing stock in his article, up about 180% in 2009 and 42% from 2008-2009.
“The 2022 setup has a sense of déjà vu,” he wrote. “History shows us to be more resilient to recessions than investors currently believe.”
Earlier this month, JD Sports appointed French retail executive Regis Schultz as its new CEO. New leadership and tighter regulatory controls should be seen as positive.
Most analysts believe the retailer, which also owns the Duffer of St. George and Mackenzie brands, is misunderstood. They say JD Sports should not be compared to its competitors. That’s because its main clientele is between he’s 16 and he’s 24, a group that’s into the latest brands and isn’t burdened with mortgages or other financial commitments. In addition, our strong relationships with major brands allow us to sell exclusive products at fixed prices.
“JD knows better than anyone what the sports fashion-focused ‘street’ consumer wants,” interim CEO Cass Smith said in a statement. ‘s laser focus allows us to curate and deliver the right products for this audience.”
JD Sports has a market value of £6.7 billion and employs over 67,000 people. In 34 countries he operates 3,360 stores. He’s trading at a multiple of 10.5 times this year’s expected earnings, making him 10% cheaper than his peers.
The company posted a profit before tax of £947.2m in the 52 weeks to 29 January. That’s more than double his £421.3m in 2021. Annual turnover increased from £6.1 billion to £8.6 billion in 2021.
The company is conservative in its forecasts, expecting flat 2023 earnings in line with 2022 results. Shore Capital analysts Eleonora Dani and Clive Black say they can offset higher costs by passing on higher prices to customers. The company is “well-managed with excellent cash generation, tight inventory control, and cost control,” they wrote in a note.
JD Sports has a track record of acquiring rival retailers. Acquired his 80% stake in Greek retail group Cosmos and acquired U.S. shoe retailer Shoe Palace. Credit Suisse analyst Simon Irwin wrote in a recent note that JD Sports “will continue to be viewed as the consolidator of choice for brands.”
He estimates that the company has a large war chest of £1.7bn in a year, adding: “We believe M&A will continue to be an important vehicle for growth and value creation.”