JD Sports Fashion(LSE: JD) issued an upbeat trading update today, ahead of the companys AGM.
The company reported that it has made a strong startduring the first 19 weeks of the year. However, a weak euro is weighing on JDs European stores, and international margins are expected to suffer as a result.
Whats more, the group notes that it is trading againstchallenging comparatives for the remainder of the year.
Still, the JDs management remains confident that after a strong start to the year,current earnings expectations for the financial period ended 31 January 2016 should be met.
According to current City forecasts, JDs earnings per share are set to expand 10% this year. Sales are forecast to grow by 6.1%. Based on these estimated rates of growth, JD will earn 42.6p per sharefor the year ended 31 January 2016.
City analysts are predicting similar growth for 2017. EPS growth of 11% is pencilled in for next year, which implies that 2017 EPS are set to expand to 47.3p.
Based on these figures, JD is trading at a forward P/E of 15.8 and 2016 P/E of 14.5.
Todays update is just the latest in a long run of positive updates from the retailer. Indeed, over the past six years JD has nearly doubled sales and EPS has galloped forward at a rate of around 10% per annum.
JDs dividend payout has increased at a similar rate and the company currently yields 1.1%.
For example, while ASOS has been able to drive impressive sales and earnings growth since 2009, this growth has been erratic and has come at the expense of profit margins.
Best of breed
Since 2009, ASOSs operating profit margin has been cut in half. Furthermore, while EPS have expanded at around 19% per annumover the past six years, EPS fell 67% during 2012, 16% during 2013 and are forecast to fall 5% this year.
For a company thats trading at a forward P/E of 88, ASOSs growth is erratic, and the high valuation dose does not leave much room for error. Similarly, Supergroups lofty valuation seems to be over-exaggerating the companys prospects.
Supergroup currently trades at a forward P/E of 19.9. According to current forecasts, the companys EPS are only set to expand by 2% this year. The company doesnt offer a dividend yield.
Numbers dont lie
I think JD is the best pick of this trio of retailers. And the best way to highlight the companys success is toanalyse how an investment of 10,000 in each company would have fared over the past five years.
From June 2009 to present JD has turned10,000 into60,000,including dividend reinvestment.
10,000 worth of ASOS stock would have turned into 75,000 today not bad but at one point it was worth twice as much. Meanwhile, Supergroup has returned 100% over the period.
Overall, it may seem like ASOS has achieved the best return for investors but most of this performance is tied to the companys premium valuation. If ASOSs valuationwere to go back to more normal levels, JD would lead the pack by a mile.
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