Retail is a tough business, but you wouldnt know that from looking at the share price of JD Sports (LSE: JD) over the last several years.
Today JD Sports revealed its interim profits had doubled to 20m, and its shares gained a chunky 8% to 439p. At this level, they are within touching distance of their all-time high of 456p set in May of this year.
Expanding in Europe
The group now has around 900 stories covering sports, fashion and outdoor pursuits. It remains primarily a UK business, but its European revenues grew an impressive 45% over the same period last year, and now account for nearly a fifth of all sales.
Digging into the profit and loss account, we can see gross margins were actually down by over one percentage point on last year at 47.6%. Various factors were at play here, including a change in the sales mix towards footwear and the recent acquisition of a lower-margin business.
However, JD Sports is also benefitting from economies of scale and was able to reduce its selling and distribution costs by much more than the decline in gross margins by, for example, closing a duplicate warehousing facility.
The second-half bias
Investors shouldnt get too carried away though, as the majority of JD Sports profits are earned in the second half of the year. That is perhaps why there was a relatively stingy dividend increase of 3%.
Peter Cowgill, Executive Chairman of JD Sports, commented: The Board recognises the demanding comparatives of the second half of the last financial year, particularly in the core UK and Ireland Sports fascias where like for like sales increased by 11.2%, as well as our significant dependence on Christmas trading, but following the robust performance of the business in the first half believes that the Group is well positioned to deliver results towards the upper end of current market expectations.
Analysts had been expecting earnings per share of around 31p for the current year, putting the shares on a forward P/E of 14.
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Stuart Watson has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don’t all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.
