Why I’d buy shares in this fast-growing firm right now

A new phase of international expansion looks set to power returns at this great British company.

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The world of high street retail has always been an unforgiving one. The list of once-popular firms that have disappeared is a long one and includes previously mighty names such as BHS. Meanwhile, House of Fraser ran into trouble recently, and you only have to look at the share price charts of companies such as Marks & Spencer and Debenhams to get a feel for their struggles as they fight to survive.

It’s not the sector failing, just some of the firms in it

Yet not all retail outfits face difficulties. Some are thriving, and one of the biggest success stories of the past few years is found in sports/fashion and outdoors goods retailer J D Sports Fashion  (LSE: JD). The firm’s record of growth is impressive. We’ve seen robust double-digit percentage increases in earnings per share over the last five years, which has driven up the share price manyfold.

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We keep hearing how tough conditions are in retail, but J D Sports Fashion proves that things are only difficult if you are not giving customers what they want. Those old-fashioned firms with department-store business models I named above just seem out of place in today’s retail market and I reckon that’s why they struggle. There’s a clear difference in the way JD Sports Fashion approaches its business.

Executive chairman Peter Cowgill explained in today’s half-year report that the company has invested to develop a “dynamic” multichannel proposition combining physical and digital retail “enabling customers to interact with us where and when they want and through the channel of their choice.”

The business model works, and today’s figures are good once again, which is an outcome we’ve become used to. Revenue came in 35% higher than the equivalent period last year, and basic earnings per share rose 24%. Despite all the doom and gloom in the news about the retail sector, JD Sports Fashion managed to increase total like-for-like sales by 3% and improve its profit margins. The directors increased the interim dividend by 4%, signalling their confidence in the outlook.

Brisk expansion abroad set to fuel returns

International expansion is gathering pace. During the period, the company added 18 JD stores in mainland Europe and 21 in the Asia Pacific region, including its first stores in South Korea and Singapore.

Meanwhile, after acquiring Finish Line in the USA, the directors plan to trial the JD facia there in the second half of the year. To put things in perspective, in the first half of this year, 52% of revenue came from the UK, 33% from Europe, 10% from the US, and the remaining 5% from the rest of the world. So I think we’ll see those international revenue percentages ramping up fast. The potential is mind-boggling. And if the firm’s offering ‘clicks’ abroad, we could see more strong earnings growth numbers coming through in the years ahead too.

Cowgill told us in today’s report that sales in the second half have been as strong as in the first half, so far, which supports the directors’ continued confidence in the robustness of the JD proposition.”  I reckon JD Sports Fashion has plenty of mileage left for investors and the firm is well worth your research time now.

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Kevin Godbold has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

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