Retail analysts react to JD Sports doubling previous profit record
Shares in Britain's largest sportswear retailer JD Sports rose 5.03% after the company doubled its previous profits record in its trading update this morning.
The retailer achieved headline profit before tax and exceptional items of £947.2 million (2021: £421.3 million); the previous record of £438.8 million was set in the period to 1 February 2020. Sales for the year reached £8.56 billion (2021: £6.17 billion).
Following the departure of its long-standing Chairman Peter Cowgill last month, JD Sports had revealed a corporate overhaul to split Cowgill's role as it accelerates the search for a new CEO.
The board also disclosed that the initial plan for Cowgill to have a substantial handover period with any new CEO, before retreating to the role of chairman, was not popular with potential incoming CEOs who wanted a short handover.
Helen Ashton, Interim Chair at JD Sports:
"This result demonstrates our capacity for growth in both existing and new markets, and the strength of our global proposition and consumer engagement in store and online.
"JD is a globally recognised iconic multichannel retailer with a proven strategy, clear momentum and a talented and resilient senior management team who are recognised within the sports fashion industry as some of the leading figures in their fields. The Board and senior management team are united in their determination to build on the historical successes with the same laser focus on the consumer, commercial rigour, attention to service excellence and analytical intensity."
Statement from the Board:
"Working with Spencer Stuart the Group commenced a global search for a new Group CEO. A number of excellent candidates were attracted to this role but a recurring theme was a wish for a much shorter handover period. This search process also coincided with the governance and assurance workstreams referred to above and it is the Board's view that the new CEO should have the opportunity to shape that process. Accordingly, the Board decided to accelerate the separation of the roles of Chair and Chief Executive Officer and Peter Cowgill left the Group on 25 May 2022.
The process to recruit a CEO is ongoing with a number of high calibre candidates at different stages of consideration including some who have only recently made their interest in the role known."
Russ Mould, Investment Director at AJ Bell:
"While JD Sports has reported a record set of results, it must be noted that this financial period ended before the Ukraine crisis unfolded and inflation surged higher.
"Therefore, it is not representative of the current environment in which consumers are under considerable financial pressure and are losing confidence with regards to the economic outlook, which will curb their ability and willingness to keep spending at levels seen in 2021.
"This headwind is clear to see in the retailer’s forward earnings guidance. After seeing pre-tax profit more than double in the past financial year, JD now expects no profit growth at all in the current year.
"To make matters worse, the company is still searching for a new leader after splitting with executive chairman and architect of the group’s success, Peter Cowgill. Fortunately, whoever it hires will inherit a strong business with fingers in many pies.
"JD Sports is more than premium trainers. It is now more involved in the biking space, capitalising on interest from those having a mid-life crisis and happy to splash several thousand pounds on the latest carbon frame road bike, as well a general trend for people to be healthier and do more exercise.
"It has also expanded its presence in the gym market where there is a large cross-over with its customer base for clothing, outdoor equipment and bikes."
Walid Koudmani, Chief Market Analyst at financial brokerage XTB:
"The extremely positive performance reported by JD which showed that profit before tax rose to £654.7 million for the year ended Jan 29, from £324 million a year ago could be in part attributed to the overall improvement of the economic conditions after the pandemic, which saw demand and consumer spending increase significantly.
"In addition, its global divisions along with its outdoor division heavily benefited from the reopening of economies and the return of international travel. The search for a new CEO could prove to be crucial in ensuring its long term success continues since a wrong move could cast doubts on the company and lead to uncertainty among investors who could already be getting anxious.
"Aside from the reasons why the previous CEO departed, it seems to be that finding a new one could be more difficult than previously expected as a longer handover period is expected while many prospects would like it to be otherwise.
"Nevertheless, the company's performance cannot be ignored and it is quite impressive how strongly it managed to increase its sales despite a general negative geopolitical and economic climate."
"These are a record set of results showing continued momentum across the board. In particular, we highlight the strong performances from the sports fashion retail fascias in the UK and republic of Ireland and North America, and the return to profitability of the outdoor division thanks to an elevated UK holiday demand.
"To say that the recent and sudden departure of Peter Cowgill, Executive Chairman, had investors spooked would be an understatement. This, in fact, has compounded concerns around the weakening consumer confidence and pressure on athleisure in favour of occasion and workwear trends. However, the group highlights that trading year-to-date has been reassuring, with revenue +5 YoY on a LfL basis, achieved despite the global shortfall in the supply of certain key footwear styles."