JD Sports’ share price has been something of a slam dunk this year. Bumper profits, an ambitious growth strategy and a return to high street spending after the pandemic era have all pumped up investor sentiment. The retailer best-known for on-trend trainers is now hoping to post profits of over £1bn this financial year, having narrowly missed that target in full-year results published earlier this month. But with the stock dipping last week, is the ambitious profit target already priced into the stock?
JD Sports’ [JD.L] share price failed to catch fire last week despite posting a strong set of full-year numbers. Sales hit £10.1bn for the 12 months to the end of January 2023, up from £8.6bn in the year-ago period. Profits were £991m, up from £947m, a record for the company and just short of the magic billion mark. Organic sales growth was up 12% and profit margins up 10%.
Boosting sales is a target market of young adults between 16 and 24, relatively unaffected by the cost of living crisis and with disposable income to spend on the latest trainers, hoodies and joggers.
JD Sports now expects profit before tax and adjusted items to come in at around £1.03bn for its current financial year.
How did the JD Sports share price react?
Despite forecasting that profits will top the £1bn mark this financial year, the JD Sports share price fell over 8% last week, with the stock experiencing a 7.76% drop on Friday 19 May to close the week at 159.25p. Dampening sentiment was a one-off £550m charge for adjusted items and a lack of profit upgrade from previous estimates.
AJ Bell investment director Russ Mould said that there was little in the results “to get the stock moving upwards”. Mould added that “JD still has work to do and considerable sums to spend to meet its ambitious goals for growth”, although he acknowledged that new CEO Régis Schultz was off to a “flier” since taking over from Peter Cowgill.
Year-to-date, JD Sports’ share price is up over 26%. However, since the middle of March the stock has been largely range-bound as it oscillates between a floor of just under 160p and a ceiling of 177p. Over the 12-month period JD Sports’ share price is up over 30%, with the stock having rallied from a close of 89.2p on 12 October to 186.65p on 3 February.
JD Sports looks to North America to grow sales
JD Sports is hoping to increase its international footprint to deliver growth. Expanding overseas is a core part of CEO Schultz’s strategy, with Schultz promising to turn the retailer into a “global sports-fashion” powerhouse. At the time, the ex-Monoprix CEO said he saw “significant growth opportunities ahead” by expanding into North America and Europe.
In February Schultz unveiled a plan to spend £3bn opening 1750 new stores over the next five years. This is a big investment, but Schultz has said he expects the strategy to deliver double-digit growth in revenue and operating margins.
In full-year results published this month, JD Sports added detail to its plans to open more stores in the US and Canada. In North America, JD Sports has 144 stores, with the bulk being in the US. By January 2024 it plans to have over 250 stores open in the region. Key territories include Los Angeles, Texas and New York. North America is a major contributor to JD Sports’ top-line numbers, having delivered £3.8bn in sales last year.
In the EU, JD Sports plans to extend its presence in underdeveloped markets and increase the number of stores to over 550. Earlier this month, JD Sports paid €520m to acquire French sportswear retailer Courir. In the mature UK market, JD Sports plans to upsize stores in major retail locations, such as the Trafford Centre in Manchester and Bluewater in Kent.
Where next for JD Sports share price?
Considering the underwhelming response to JD Sports’ full-year results, investors will need to weigh up whether international expansion and £1bn of profit is already tied up in the stock, and just how much upside is left. A lot will depend on whether JD Sports can hit its CEO’s ambitious growth targets. Any miss could see the stock falter. Analysts tracking the stock have a median 12-month price target of 212.5p, suggesting a 33.4% upside on Friday’s close.