The JD Sports Fashion (LSE: JD.) share price tumbled 4.3% in early trading on Wednesday (2 October), on the back of a first-half results update.
That’s despite the update speaking of “record interim results.” And it reflects a confusing divergence between headline and statutory measures.
We’re looking at an overall flat, though short-term, volatile, share price over the past five years. So what can we make of it?
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Healthy headlines
JD reported a 2% rise in profit before tax, but that’s before adjusting items. Adjusted earnings per share (EPS) show a 4.5% rise to 5.15p. And that spurred the board to lift the interim dividend by 10% to 0.33p per share.
The dividend doesn’t seem to be of major importance right now, though, with a forecast full-year yield of only 0.6%.
These figures look fine. But on statutory measures, we have a 64% decline in profit before tax, with basic EPS down a whopping 90%.
Alternative performance
JD tells us that it uses its own ‘Alternative Performance Measures’ to report on how well the business is doing.
It describes these as “not recognised by International Accounting Standards,” and says they “may not be directly comparable” to how other companies report.
Statutory measures often really don’t give us much clue about the real health of a business. And offering a guide to underlying performance can be a big help.
But if every company does it their own, different, way, how can we compare like with like?
There’s a wide discrepancy between statutory and alternative measures here. So how is an investor who doesn’t have a degree in accounting supposed to know what to make of it?
Long-term view
I think the uncertainty is a shame, because JD Sports looks to me like a good stock to consider buying for long-term growth.
And I’m buoyed by reading the words of CEO Régis Schultz, who says: “Our strong business model and clear strategy position us to deliver long-term growth and value creation for our shareholders.”
The company has stuck with its full-year guidance of £955-1,035m for profit before tax. That’s going by those alternative performance measures, of course.
It does add, though, that the strength of the pound is a drag this year. It has, it says, reduced first-half profit by £6m, and should have a £20m impact on the second half.
Forecasts
Turning to analyst forecasts, I see EPS expected to grow by 60% between 2023 and 2026. That would bring the price-to-earnings (P/E) ratio down to nine, from the 12 predicted for the current year.
We see PEG ratios, which relate the P/E to EPS growth, of 0.6 and 0.7 for the next three years. That would typically be seen very favourably by growth investors.
Would I buy? I’m torn. I fear the retail trade might not be as strong in the medium term as the JD board seems to think.
And I really don’t know how to judge these alternative-based valuations. I just don’t have Warren Buffett’s skills in taking apart a company’s accounts.
