High street retail crisis? What crisis? If mainstream UK retail is in meltdown, nobody got round to telling JD Sports Fashion (LSE: JD). Its stock is up almost 8% at time of writing as it puts on another burst of pace following publication of its interim results for the 26 weeks to 3 August.
JD for me
Today’s surge will be a familiar feeling for long-term investors in JD Sports (and how I wish I was one of them). The stock is up almost 700% in the last five years, an incredible performance that drove it into the FTSE 100 in June.
This also puts into perspective all the whining and grumbling from traditional retailers who cannot keep up with changing consumer fashions.
First, please don’t confuse JD Sports with Mike Ashley’s woeful Sports Direct, (which remain shares to avoid at all costs). They may be rivals but there is only one winner. JD combines sports, fashion and outdoor brands (including high street stalwarts Blacks and Millets) to blistering effect, with revenues up 47% to £2.72bn in the last six months.
The group is also expanding internationally, with a net increase of 23 JD stores across mainland Europe, seven in Asia-Pacific and six in the US, where the physical stores are now complemented by a trading website.
Total life-for-like sales growth in global Sports Fashion fascias hit 12%, including “highly encouraging growth of more than 10% in the core UK and Ireland Sports fascias.”
Brexit chaos? What Brexit chaos? JD Sports also toasted “another record result for the half year with group EBITDA on a comparable accounting basis increased by 37% to £235.2m,” with profit before tax and exceptional items on a comparable accounting basis increasing 36% to £166.2m.
Sports for all
Executive chairman Peter Cowgill expects to deliver results “at the mid-point of expectations,” saying the group’s multi-channel proposition has helped it sidestep UK retail challenges, and puts it in good shape to withstand Brexit.
The group may call itself the “undisputed king of trainers,” but Millennials and Generation Z customers can’t get enough of its T-shirts, hoodies, tracksuits and other athleisure. JD Sports just isn’t slowing down.
It now boasts a market-cap of £6.6bn and growth prospects look promising, which may justify its current elevated forward valuation of 19.4 times earnings, and PEG of 1.3. This is a pure growth play, the forecast yield is just 0.3%, but that makes a refreshing alternative to all the high dividend value traps clogging up the FTSE 100 without going anywhere, preferring to buy back their own shares than invest in future growth.
JD Sports has even found time to rescue former Oasis front man Liam Gallagher’s boutique fashion chain Pretty Green from administration, and put it to work.
The danger with growth stocks like these is that you’ve missed the real excitement, as I couldn’t see the JD Sports share price growing another 700% from here – that would lift its market-cap to £46bn, bigger than Reckitt Benckiser, Vodafone, Lloyds and Prudential.
Growth rates may slow – there can’t be that much money in trainers can there? – but it can continue to show the FTSE 100 a clean pair of heels.