Shares in JD Sports Fashion climbed on Thursday after the sportswear giant reported accelerating sales in the second quarter, buoyed by strong performance in North America.
The FTSE 100 company's shares rose by 3.8%, closing at 133p per share. JD's like-for-like sales increased by 2.4% during the three months to July, while organic revenue saw an 8.3% rise. This marks a significant improvement from the previous quarter, which saw like-for-like sales fall by 0.7% and organic turnover increase by a more modest 4.9%.
JD attributed the quarter-on-quarter improvement to the strength of its multi-brand operating model and more favourable comparisons to the prior year. The improved performance in the second quarter resulted in like-for-like and organic revenues increasing by 0.7% and 6.4% respectively during the first half of the year.
North American Performance Outshines
JD's North American division continued to lead the way, with like-for-like sales growth accelerating to 5.7% in the second quarter, up from 2% in the first. Organic sales in this key territory rose by 13.7% year on year.
In the UK, like-for-like sales declined by 0.8% in the second quarter, a marked improvement from the 6.4% decline reported in the previous three months. Organic sales also showed a positive turnaround, rising by 1.2% in the second quarter compared to a 5.8% drop in the first quarter.
Margins Under Pressure
Gross margins dipped by 30 basis points between April and July, reaching 48.4%. This resulted in first-half margins settling at 48.3%, a decline of 10 basis points. JD attributed the decline primarily to the higher penetration of apparel and online sales in the UK, where the impact was most significant.
Store Expansion and Acquisitions
JD's store portfolio grew significantly during the first half, expanding to 4,506 stores, a net increase of 1,189 from the start of the fiscal year. This expansion included 85 new JD-branded outlets and 1,179 acquired stores following the company's acquisition of Hibbett last month for approximately $1.1 billion, after accounting for the disposal of non-core stores. JD highlighted that the Hibbett acquisition adds considerable scale and presence in the US, further strengthening its brand relationships in the world's largest sportswear market.
Outlook and Guidance
Chief Executive Regis Schulz attributed the improved second-quarter sales to the "strength and agility of our multi-brand model." He also emphasized the continued success of the JD store rollout programme, which contributed to double-digit organic sales growth in North America and Europe.
Despite the positive performance, JD acknowledged the volatile global macroeconomic environment and maintained a cautious outlook for the remainder of the year. However, the retailer retained its adjusted pre-tax profit forecast, anticipating a range between £955 million and £1.035 billion.
Analyst Perspective
Anubhav Malhotra, an analyst at Panmure Liberum, described JD's first-half trading as a "solid result in the current consumer environment." He acknowledged the challenging consumer demand environment, particularly for apparel, and highlighted JD's efforts to address past underinvestment in operations and systems while expanding rapidly and integrating acquisitions. Malhotra also noted that JD's sales in North America represented a "solid outturn" considering the US consumer's shift towards value-for-money options amidst tightening discretionary spending.
