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Can JD Sports pull out of the recession?

JD Sports stock could be the one to watch: Photo – Getty Images

After losing almost half of its value over the past year, British retailer JD Sports (JD) rebounded 10% last week. Its sound balance sheet has allowed many analysts to revise their outlook for the stock upwards, despite deteriorating economic conditions.

As inflation began to grip the UK economy, JD Sports began to lose its appeal with investors as traditionally discretionary retail companies such as JD Sports tend not to succeed in this economic environment.

However, the company took smart steps with its cash management, and retail demand proved more resilient than expected. This has led many analysts to place the stock on a buy rating ahead of its next earnings report.

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JD Sports (JD.) Price Chart

Stable income

The rising cost of living is widely expected to dampen revenues at most retail stores. However, after a decline during the second quarter of 2020, JD Sports’ (JD.) revenue numbers rebounded in the pre-lockdown era.

In fact, its total annual turnover in June 2022 was £8,563 million, almost 50% more than what was reported in June 2021.

AJ Bell’s chief investment officer, Russ Mold, said in a note to investors why he thinks this could happen: ‘This suggests that sporting goods are still in demand and may indicate that its younger clientele , who can live at home or rent to a landlord who picks up some of the slack from rising bills, have seen their disposable incomes slightly less disrupted than the rest of us.”

Sound cash management

The company took on significant debt in 2020, the value of its debt rose from £126m in 2019 to £206bn in 2020, and hasn’t decreased since.

However, by reinvesting those funds back into the business, it improved its cash flow from negative to positive in 2020. While also becoming one of the few retail businesses to become a major dividend payer, with a current payout ratio. of 4.9% and a dividend growth rate of 62%.

Simply Wall Street analysts have a positive outlook for the stock based on growth trends in the sportswear industry. In a publication, they state, “We compared JD Sports Fashion’s net income growth with the industry and we are pleased to see that the company’s growth figure is higher compared to the industry which has a growth rate of 1.3% over the same period. ”

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