JD SPORTS FASHION (JD.) 120.6p

Gain to date: 0.8%

We said to buy JD Sports Fashion (JD.) at 119.7p on 1 June 2022, on the basis that its share price decline was overdone. We thought the price offered bargain hunters with an opportunity to invest in a high-class retailer at a low valuation not seen for years.

While JD Sports faces inflationary pressures and a consumer spending squeeze, the trainers-to-tracksuits seller has pedigree in navigating sector headwinds.

We also felt the derating in the shares, with investors latterly spooked by the departure of executive chairman Peter Cowgill, discounted JD Sports’ international growth opportunity.

WHAT’S HAPPENED SINCE WE SAID TO BUY?

A week after our positive article, the shares weakened after JD confessed to cartel activity in fixing the price of Rangers Football Club-branded replica kits. It now faces a fine from the Competition and Markets Authority.

But JD Sports’ shares then rallied off the back of record full-year results. The FTSE 100 retailer delivered record profit before tax and one-off items of £947 million, more than double the prior year’s £421 million haul.

Revenue sprinted 39% higher year-on-year to the best part of £8.6 billion amid positive momentum in the sports fashion retail business and with the outdoor division having returned to profitability.

Though the results were impressive, JD Sports’ financial year ended before the Ukraine crisis unfolded and inflation surged higher. Given stiffening consumer spending headwinds, the retailer is guiding towards zero profit growth for the year to January 2023.

WHAT SHOULD INVESTORS DO NEXT?

Investors should stick with JD Sports, which trades on just 10.3 times Shore Capital’s 11.7p 2023 earnings estimate.

The forthcoming appointment of a new CEO offers a potentially powerful catalyst, and the board says it has interviewed ‘a number of high calibre candidates’ for the role.

The incoming CEO will inherit a best-in-class retailer that is not only ahead of the pack in premium trainers but has also expanded its presence in the gym and cycling market.

As Shore Capital wrote: ‘Notwithstanding the current geopolitical uncertainty, we are bullish on JD’s ability to pass through cost inflation to consumers and drive sales density thanks to a genuinely outstanding store portfolio and consumer engagement.’

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