I’m relieved by the way in which the JD Sports Fashion (LSE:JD.) share price responded to the company’s latest trading update on Wednesday (9 April). The stock jumped 10.7% after the sports and leisure retailer said that trading was in line with expectations. The next day, it increased another 6.1%, although some of this increase was probably helped by President Trump’s change in tariff policy.
The ‘King of Trainers’
Unusually, the announcement was made at midday. Normally, these updates are released at 7am, before the market opens.
However, for long-suffering shareholders like me, it was worth waiting for. Not that it contained anything new. It simply reiterated that adjusted profit before tax (PBT) for the year ended 1 February 2025 (FY25) will be £915m-£935m.
Looking ahead to FY26, the company said it expects “the trading environment in our key markets to be volatile”. It said adjusted PBT will be in line with “current consensus expectations” of £878m-£982m, with an average of £920m.
This is a wide range and reflects the current level of global uncertainty. But as the year progresses, it will inevitably narrow.
If the £920m is achieved, this is equivalent to earnings per share of 12p. This means the stock’s trading on a multiple of 6.3 times forward earnings. This is cheap by FTSE 100 standards and remains below the company’s own five-year average of around 15.
An elephant in the room
However, there’s one issue that investors appear to have overlooked. The press release cautioned that the FY26 forecast “excludes any potential impact from changes to tariffs”.
In my opinion, the events of the past two days demonstrate that investors were concerned more about the company’s current trading than tariffs. After all, the group hasn’t upgraded its earnings forecast. It’s almost as though investors have breathed a collective sigh of relief.
To try and maintain the momentum in the share price, the company’s announced a £100m share buyback programme. This is in addition to the meagre 1p dividend that analysts are expecting for FY26.
Compared to the previous year, FY25 like-for-like (LFL) sales were 2.5% lower in the UK. Conscious of its reliance on the domestic market, the group’s expanded into America and Europe. Here, both organic sales and those on a LFL basis grew.
Pros and cons
However, the group faces some challenges. A global recession can’t be ruled out.
And the company now has to manage and supply 4,850 physical stores, which isn’t easy.
Significantly, the company‘s hugely reliant on Nike. The American sportswear giant is struggling against competition from some of the newer entrants into the athleisure market. This dependency is likely to have increased further following the acquisition of Hibbett, which operates 1,169 stores in the US.
Overall, I think JD Sports remains in good shape. It has net cash (before lease liabilities) on its balance sheet. In the medium-term, capital expenditure will be reduced. It’s also deferred a commitment to buy the non-controlling interest of the parent company of its North American business until 2029 -2030. This means the group’s likely to generate more cash than previously expected.
In conclusion, I’m confident about the group’s growth prospects. I think it’s the sort of stock that long-term investors looking to take a position in a financially robust business could consider.
This post was originally published on Motley Fool
