JD Sports reported first-half profit before tax and adjusting items down 19.7 percent to £282 million from £351 million. Group revenue fell 0.7 percent organically to £5.9 billion. Like-for-like sales fell 2.8 percent. Operating profit dropped 19.5 percent to £294 million and the operating margin narrowed 120 basis points to 5.0 percent.
The shares rose about 2.2 percent.
They rose because the full-year guidance did not move. Adjusted profit before tax of £700 million to £800 million and free cash flow of £460 million to £520 million, unchanged from the August trading statement, when the company cut its outlook and the shares fell somewhere between 11 and 14 percent on the day.
That is the whole trade. Having already taken the punishment for the downgrade, JD’s job at these results was to prove the downgraded number was the real one rather than the first of several. It did, and the market paid two percent for it.
Anyone who has ever had to give a customer bad news twice understands exactly why that is worth something.
The first time you tell a wholesale client the delivery has slipped, you get a sigh and a rearranged schedule. The second time, for the same order, you are no longer having a conversation about logistics. You are having one about whether anything you say has a fixed relationship to what happens, and that conversation is far more expensive than the late delivery. A revised date that holds is worth more than the original date was.
The detail underneath the numbers is where the difficulty sits. North American operating profit fell 32 percent to £123 million with the margin down 230 basis points, and second-quarter like-for-like sales in that market dropped 6.8 percent. UK operating profit fell 15.3 percent to £94 million. Europe was more resilient at down 1.9 percent to £52 million. Asia Pacific comps grew 3.0 percent.
Footwear organic sales fell three percent and dropped to 60 percent of the half from 62, which JD attributes to a significant shift in the global footwear product cycle as smaller newer lines replace larger end-of-cycle ones from its brand partners. Nike, which is resetting its own business, accounts for more than 40 percent of JD’s sales. That is the structural exposure and no amount of good retailing fixes it in a half.
Against that, the balance sheet did real work. The group ended the half with net cash of £168 million, an improvement of nearly £300 million year on year after returning £260 million to shareholders through buybacks and dividends over twelve months. Free cash outflow narrowed from £68 million to £18 million. The interim dividend rose 21 percent to 0.40p and the final tranche of the £200 million buyback has started. Gross margin fell only 20 basis points to 46.8 percent, better than the 50 analysts expected. Sporting Goods and Outdoor grew operating profit 32 percent.
Peter Agnefjäll, formerly chief executive of IKEA Group, became chair on 1 September.
The trading did not improve. The forecast held, and that was the news.
Source: AskTraders, “JD Sports Shares Rise as Guidance Holds Despite Sales Slump”
