Why I’d buy FTSE 100 stock JD Sports Fashion right now

The profitable expansion of JD Sports Fashion (LSE: JD) has been remarkable. But I think there’s more to come from the firm’s international operations.

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The profitable expansion of JD Sports Fashion (LSE: JD) has been remarkable. The stock rose by around 775% over the past six years to reflect the progress of the business. And the company entered the FTSE 100 during 2019.

JD Sports Fashion looks set to grow further

It would be easy to dismiss the share now and assume I’m too late to the growth party. However, JD Sports Fashion is making strong progress abroad in markets such as Europe and the USA. And I think the moves into new territories have lifted the cap from the growth jar. JD has bigger horizons to aim for now.

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Today’s full-year results report contains some pleasing figures, considering the presence of the pandemic. In the 52 weeks to 30 January, revenue rose by 0.9% compared with the prior year. And adjusted earnings per share declined by 6%.

Executive chairman Peter Cowgill pointed out the company achieved similar profits as the previous year. And that was despite the stores being closed much of the time because of the pandemic. He reckons JD was resilient due to its “market-leading” multichannel offering. The directors rewarded shareholders by reinstating dividends. 

Progress has been particularly strong in the United States. We can get a feel for the scale of expansion abroad from the revenue figures. Around 41% came from the UK in the period, 29% from the US, 26% from Europe and 4% from the rest of the world.

Strong progress in the US

Cowgill points to the recent acquisitions of Shoe Palace and DTLR in the US, and the conditional purchase of Sizeer in Central and Eastern Europe. He reckons those deals will “transform” consumer connection in those markets and further develop the company’s key brand relationships.

The American acquisitions complement the firm’s existing Finish Line and JD chains. And the expansion will “significantly enhance” JD’s exposure to “key consumer demographics on the West Coast and East Coast of the United States.”

Meanwhile, those existing US operations put in an “exceptional” trading performance during the year. And that was partly driven by enhanced consumer demand due to US Government stimulus.

During the year, JD opened a flagship store on Times Square, New York. There seems no doubt the company is determined to make its presence felt across the pond. And in Europe, JD opened a net 31 new stores with five new branches added in the Asia Pacific region as well.

However, the share price has more than recovered already from last year’s Covid dip. And the valuation isn’t cheap. With the share price at 936p, the forward-looking earning multiple is around 26 for the current trading year to January 2022. But City analysts only expect earnings to advance by around 12% that year.

I reckon there’s a substantial risk the share price could retreat along with the valuation if those growth figures don’t pick up. One risk is the retail sector is highly competitive. And there’s a long history of British company’s hitting the rocks when they aim to expand in the US.

Nevertheless, JD Sports Fashion still attracts me and I’d be keen to tuck some of the shares away to hold as the long-term growth story rolls out.

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Kevin Godbold has no position in any share 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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