JD SPORTS FASHION (JD.) 161.45p

Gain to date: 41%

Our ‘buy’ call (22 December 2022) on trainers-to-tracksuits retailer JD Sports Fashion (JD.) at 114.6p has been rewarded with a 41% gain in a matter of weeks, the stock sprinting ahead amid a great start to 2023 for UK stocks and improving sentiment towards retailers following a flurry of better-than-expected Christmas trading updates.

WHAT’S HAPPENED SINCE WE SAID TO BUY?

On 11 January, the athleisure specialist and self-styled ‘King of Trainers’ reported bumper festive sales and said it expects pre-tax profit for the year to January 2023 to come in ‘towards the top end’ of the £933 million to £985 million forecast range. That implied a 4% upgrade on previous guidance, though the final full year outturn will hinge on the January sales.

JD Sports highlighted ‘particularly impressive’ Christmas sales in its organic retail businesses, both in stores and online, with total sales growth topping 20% over the peak six weeks to 31 December 2022 despite highly promotional sportswear market conditions.

WHAT SHOULD INVESTORS DO NOW?

A quick-fire 41% gain is more than we could have reasonably expected in 12 months, let alone a few weeks, given the pressures facing retailers. A sensible strategy is to lock in profits while the going is good and sell the value of your original investment. The remaining holding would provide a free ride on a stock that remains good value, trading on a shade over 12 times Shore Capital’s year-to-January 2024 earnings per share estimate of 13.1p.

New CEO Regis Schultz is confident the JD brand will continue to resonate with the global consumer, JD Sports Fashion is benefiting from improved product availability and easing shipping costs, and it is well-positioned to capture market share from weaker competitors.

A big investor day in February should include an update on its digital strategy and what the retailer plans to do with its large pile of cash, with an earnings-enhancing share buyback among the capital allocation options in front of management.

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