Share Buybacks And Improved Sector Views Will Shape Retailer’s Next Chapter

Key Takeaways

• Strategic expansion in North America through acquisitions and conversions could drive revenue and market share growth.
  
• Supply chain and digital investments aim to improve efficiency, customer engagement, and future margins.
  
• Challenges from weather, reliance on major brands, competitive pricing, currency fluctuations, and higher interest expenses threaten JD Sports' revenue and profitability.

Catalysts

Engages in the retail of branded sports fashion and outdoor clothing, footwear, accessories, and equipment for kids, women, and men in the United Kingdom, Republic of Ireland, Europe, North America, and internationally.

• The successful acquisition and integration of Hibbett is expected to bolster JD Sports' presence in North America, leveraging operational excellence and a broader multi-brand strategy, which will likely drive increased revenue and profitability in this key growth market.
  
• JD Sports plans to accelerate the conversion of Finish Line stores to JD fascia, aiming for a complete conversion within three years, potentially enhancing revenue and market share in North America.
  
• The company's strategic focus on doubling its market share in North America over the next three years post-Hibbett acquisition suggests a robust growth trajectory, which could significantly boost future earnings.
  
• Expanded investment in supply chain infrastructure, including new distribution facilities in Europe, the U.S., and Australia, is expected to enhance operational efficiency and lower costs, potentially improving net margins.
  
• Continued growth in digital and omnichannel capabilities, alongside the expansion of the JD STATUS loyalty program, is set to increase customer engagement and average transaction value, likely contributing to higher future revenues.

JD Sports Fashion Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming JD Sports Fashion's revenue will grow by 7.0% annually over the next 3 years.
• Analysts assume that profit margins will increase from 4.3% today to 5.4% in 3 years time.
• Analysts expect earnings to reach £751.2 million (and earnings per share of £0.14) by about September 2028, up from £490.0 million today. However, there is some disagreement amongst the analysts with the more bullish ones expecting earnings as high as £867.4 million.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 10.7x on those 2028 earnings, up from 9.7x today. This future PE is lower than the current PE for the GB Specialty Retail industry at 23.3x.
• Analysts expect the number of shares outstanding to remain consistent over the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 10.7%, as per the Simply Wall St company report.

JD Sports Fashion Future Earnings Per Share Growth

Risks

• JD Sports faces challenges from adverse weather conditions that have impacted fashion and apparel sales in key markets like the UK, potentially affecting overall revenue.
  
• The reliance on major athletic brands like Nike introduces risk, particularly as Nike has reported underperformance; this could impact JD's sales if similar issues arise with other major brands or if Nike's slump continues longer than anticipated, affecting revenue growth.
  
• The promotional environment remains intense and competitive, which may pressure gross margins as JD potentially engages in price reductions to maintain sales volumes, impacting net margins.
  
• Currency fluctuations, particularly the strengthening of the British pound against USD and euro, present a potential headwind affecting revenue and profit when converting earnings from overseas markets like North America and Europe back to GBP.
  
• Increased interest expenses due to ongoing lease obligations and acquisitions like Hibbett may pressure profitability, as higher costs could weigh on earnings and overall financial health.

Valuation

• The analysts have a consensus price target of £1.175 for JD Sports Fashion based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of £2.0, and the most bearish reporting a price target of just £0.84.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be £14.0 billion, earnings will come to £751.2 million, and it would be trading on a PE ratio of 10.7x, assuming you use a discount rate of 10.7%.
• Given the current share price of £0.94, the analyst price target of £1.17 is 19.7% higher.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.