A sell-off at JD Sports Fashion (JD.) presents bargain hunters with an opportunity to bag shares in a high-class retailer at a valuation not seen for years.

While it faces inflationary pressures and a consumer spending squeeze, the trainers-to-tracksuits seller has proven pedigree in navigating sector headwinds and boasts strong relationships with globally-recognised and sought-after brands such as Nike, Adidas
and Puma.

The year-to-date de-rating also discounts a huge international growth opportunity ahead for JD Sports, particularly in the world’s largest athleisure market, the US, following the acquisitions of The Finish Line, Shoe Palace and DTLR in recent years.

RARE SHARE PRICE STUMBLE

Shares in JD Sports Fashion, the FTSE 100 company which also caters to outdoor lifestyle fans through brands including Blacks, Millets and Go Outdoors, have de-rated on concerns over consumer spending and latterly, the surprise departure of long-serving boss and executive chairman Peter Cowgill.

Instrumental to JD Sports’ success, Cowgill was reportedly resistant to the board’s efforts to address corporate governance concerns and his departure brings an amazingly successful tenure to an end; Cowgill helped the sports, fashion and outdoor brands retailer to be among the best performing names on the stock market.

MOMENTUM AT ITS HEELS

While change at the top creates uncertainty, there will be no shortage of first-rate retail operators looking to take the reins at JD Sports and the fundamentals of the business remain robust, with its proven strategy working and momentum at its heels.

In its latest positive update, the self-styled ‘king of trainers’ delivered another profit upgrade in the face of a global shortfall in the supply of ‘certain key footwear styles’, reporting like-for-like sales up 5% in the 14 weeks to 7 May 2022 thanks to the strength of its brand relationships and winning product offering.

Well-managed with attractive gross margins and excellent cash generation, the retailer expects headline pre-tax profits for the year to January 2023 will ‘at least be equal’ to the £940 million it will shortly report for the year to January 2022.

Cash winging its way into the pockets of hard-pressed consumers following Rishi Sunak’s ‘windfall tax’ should support athleisure spending. And the fact a high proportion of sneaker-loving youths still live at home should shield them from the worst ravages of the cost-of-living crisis.

For the financial years to January 2023 and 2024, Shore Capital’s adjusted pre-tax profit forecasts of £876.7 million and £958.3 million translate into earnings per share of 11.7p and 12.4p respectively.

Based on these estimates, JD Sports trades on prospective price to earnings (PE) multiples of 10.2 and 9.7 for this year and next, an unmissable discount to 2021’s peak PE ratio of 33 times.

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