With sales ahead 20% and a dividend hike of 10%, this could be the best high-street bargain.
JD Sports Fashion (LSE: JD), one of the UK's leading sportswear and fashionwear sellers, unveiled a solid set of results this morning given the well-publicised troubles of the UK's retail sector.
Sales top £1 billion
Thanks to a series of astute acquisitions, JD Sports saw its turnover top £1 billion for the first time, reaching £1.06 billion in the year to 28 January 2012. This was a fifth (20%) ahead of 2010-11, driven largely by contributions from newly acquired brands such as Blacks Leisure (snapped up from administration in January for £20 million).
However, several of these new businesses operate at lower margins than JD's core sports retail division, which accounts for almost three-quarters (73%) of the group's revenues. As a result, gross profit margins slipped to 49.2% from 49.5%.
Thanks to a modest loss from joint ventures and higher financial costs, JD's profit before tax and exceptional items slipped 7% to £76 million. With one-off costs more than doubling to nearly £10 million, pre-tax profit dipped 14% to £67 million.
Excluding exceptional items, adjusted basic earnings per share (eps) dropped by more than 9% to nearly 106p. Despite this fall, JD Sports lifted its full-year dividend to 25.3p, up a tenth on 2010-11's payout of 23p. This means that JD's cash payout to shareholders has almost tripled in four years, up 198% since 2007-08.
A sound balance sheet
With like-for-like sales up 1.2% in the nine weeks to end-March, Peter Cowgill, JD's executive chairman, said:
"During the period, we have invested significantly in brands, businesses and infrastructure to strengthen the platform for future development of the Group. Despite the continued difficult trading conditions across our markets, we are pleased to report some positive results within the Group, particularly from our mainland European businesses."
One thing that separates JD Sports from its rivals is its strong balance sheet. At the end of January, it had net cash of over £60 million. Although this is down from £86 million a year earlier, it reflects substantial investment in acquisitions in the UK, Ireland (Champion Sports) and Spain (Sprinter).
What's more, JD produces a lot of cash, generating £69 million of net cash from operating activities during the year, much of which was reinvested back into the business for future growth.
Cheap as chips
Expecting a boost from this summer's sporting events (the London 2012 Olympics and the Euro 2012 football tournament), JD's chairman commented:
"The Group is exceptionally well positioned with its retail proposition, financial resources and management experience to take advantage of any opportunities both in the UK and internationally."
JD is expanding in France, Ireland and Spain, opening its first JD store in Granada less than two weeks ago. In addition, it aims to improve its efficiency by opening a new centralised warehouse in Rochdale, Lancashire, which will become fully operational this summer.
Given JD's steady success here and in Europe, one might expect its shares to trade at a premium to the wider retail sector. Not so -- as I write, its shares have slipped more than 4% to 765.5p, valuing the FTSE 250 firm at nearly £375 million. At this price, they trade on a forward price-to-earnings ratio below seven and offer a prospective dividend of 3.5%, covered more than four times.
Given its experienced, shrewd management team, solid balance sheet, hefty margins and expansion plans, JD's rating is far too low. For value investors, it may well be the strongest buy on the high street right now!
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