The outlook for athleisure demand looks stronger than many people might have expected, given how JD Sports Fashion’s (JD.) new full-year earnings guidance is 56% higher than the analyst consensus forecast.

Shares in the retailer jumped nearly 7% to 772.7p on 8 September after the company said its current financial year should deliver at least £265 million pre-tax profit. Ahead of that new guidance, analysts were expecting £170 million of earnings.

While investors understandably got excited about the stock, JD’s management is mindful of weak footfall, the uncertain outlook for consumer confidence and the potential for further Covid-19-related operational restrictions.

The first-half period to 1 August hasn’t been easy for JD, as evidenced by group revenue falling 6.5% year-on-year to £2.54 billion as the impact of the lockdown weighed on the retailer’s results.

Pre-tax profit plunged 68% to £41.5 million as JD also had to absorb the additional costs associated with the shift online during the temporary store closures.

Period-end net cash amounted to £765 million thanks to temporary factors including agreed extensions to supplier terms and rent deferrals.

Over the past decade or so, JD Sports has been the star turn in the retail sector, successfully targeting a youthful demographic with disposable income and tapping into the athleisure trend of wearing trainers and tracksuits to socialise, work and work out. Agreements with sought-after brands like Adidas and Nike helped contain the first-half sales reduction.

However, part of JD’s target market could be vulnerable to unemployment, particularly assuming the furlough scheme in the UK ends as planned in October.

JD says the pandemic has ‘brought into sharper focus’ the need to improve the infrastructure and fulfilment capabilities of its digital channels. It has invested more than £2 million during the first-half on additional equipment and fixtures for UK operations, and it would seem natural to expect more money to be invested in this area.

It also looks like significant investment is required to improve its European supply chain infrastructure, acting as a reminder that growing businesses need to invest heavily to stay competitive.

Shore Capital says JD Sports remains a well-managed company with tight stock and cash controls and good cash generation reflected in its strong balance sheet. ‘We continue to highlight the international opportunity, particularly in the US with Finish Line, where there remains a significant opportunity to grow the gross margin with the introduction of fashion clothing line,’ it adds.

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