JD Sport Fashion (LSE:JD.) shares have crumbled 42% in value over the last year amid tough retail conditions. First-half financials on Wednesday (24 September) showed pre-tax profit before adjusting items down 13.5% in the 26 weeks to 2 August.
The 18% sales rise it enjoyed was down to new store openings and the acquisitions of Hibbert and Courir (in the US and France, respectively) the year before.
On a like-for-like basis, sales slumped 2.5% with turnover dropping across its regions. Worryingly, sales declines were especially severe in the US, JD Sports’ single largest market. Sales here dropped 3.8% from a like-for-like view.
The FTSE 100 retailer could face further turbulence as rising inflation and difficult economic conditions exacerbate consumer caution. Yet, some analysts believe JD Sports’ share price crash since last September could mark a compelling dip buying opportunity for long-term investors.
Analysts are bullish
Analyst Adam Vettese of eToro has commented that “shares are not far off half of what they were 12 months ago, and such a heavy discount may tempt some investors to back the turnaround“. He notes that “the investment case remains anchored on JD’s global scale, proven brand model, and ability to deliver returns to shareholders, provided trading conditions gradually improve“.
Meanwhile, analyst Aarin Chiekrie of Hargreaves Lansdown has said that JD Sports’ 40%-plus share price decline suggests “the recent challenges and market softness now look well priced in“.
He adds that “trading at just 6.8 times next year’s earnings, the valuation offers plenty of downside protection. And if investors are patient enough to ride out some uncertainty over the next couple of years, it could prove to be a very attractive entry point“.
The ultra-low price-to-earnings (P/E) ratio on JD Sports’ shares has certainly caught my eye.
I’m having a look
I’m not against taking a risk if a share’s long-term investment case is compelling enough. And there’s a lot I like about JD Sports, which has bolstered its growth potential through clever international expansion such as in the huge US market.
This gives it improved scope to capitalise on the booming athleisure market. Encouragingly, the premium segment is tipped for especially robust growth, an area in which the company has focused its operations. Exclusive product agreements with the world’s most beloved sportwear manufacturers like Nike and Adidas boost its position here.
I’m also encouraged by the retailer’s aggressive move into online shopping, where it has invested in new e-commerce platforms and distribution centres across its territories. Internet-generated sales now account for just under a fifth of group revenues, and have room for significant growth as consumer habits continue evolving.
Here are my next steps
As I say, JD Sports faces the prospect of further turbulence in the near term. And over a longer horizon, it will have to paddle hard to succeed in what’s an intensely competitive marketplace.
But my view is that these threats are more than factored into the share price today. I’ll consider opening a position in the retailer myself when I next have cash to spare.
