Today (22 August) saw the release of quarterly results for JD Sports Fashion (LSE:JD). The FTSE stock is up almost 9% in trading so far today, showing the positive reaction to the news. Yet even with the move today, the stock is still down 6% over the past year. Here’s where I think it could go over the coming year.
The results
Let’s digest the news that came out today. The business beat expectations in several areas, showing a clear bounce back in demand. This is huge, as the previous quarter’s results from May showed falling sales and a rather gloomy outlook. Let’s also not forget that back in January, the stock fell by 28% in a week following a profit warning.
Fast forward to now and the picture looks different. Like-for-like group sales increased by 2.4%, with organic sales growth of 8.3% in the second quarter. The business also opened 85 new stores during the period, with the acquisition of Hibbett finally done.
The confirmation of the done deal provides an exciting outlook for shareholders. The 1,179 stores in the US that JD Sports will now control provides a huge expansion potential and one that could deliver some serious financial benefits.
The fact that North America is in focus comes at a good time, as within the group it’s the best performing area. In fact, the regional 13.7% organic sales growth for the quarter helped to offset the slightly disappointing 1.2% growth from the UK market.
The direction from here
Despite the (almost surprisingly) good financial results, there was some caution associated with the news. The update noted that “the global macro environment remains volatile and so we continue to be cautious on our outlook for the rest of the year”.
Certainly, more time is needed to be able to see whether customers are sustainably spending and if demand can remain high. Yet the growth in the US provides more diversified spread of revenue for the group going forward. This means that weakness from one part of the world can be balanced out from the US or another area.
The expectation for adjusted profit before tax is now £955m to £1,035m. Headline profit before tax from last year was £991m. So it’s clear to me that the business isn’t struggling as much as some painted it to be earlier this year.
Thanks to the results today, I think more investors will feel comfortable in buying the stock as a growth share for the future.
Optimism in the air
The risk is that this was just a blip, and that later this year we’ll see sales slowing down. This could negatively impact the share price, but I don’t think it’ll be severe. After all, the price-to-earnings ratio is currently 10.58, which is what I would call a fair value. The stock isn’t trading at a premium based on lofty investor expectations.
Pulling this all together, I’m seriously considering adding the stock to my portfolio after the big news today.
This post was originally published on Motley Fool
