JD Sports has the backing of brands such as Nike and Adidas, and has created an impressive store environment. No wonder its profits soared.

Back on July 31 when JD Sports flagged that full-year pre-tax profit would be “approximately 10% ahead of the current consensus market expectations of around £110m”, because of stronger than expected first-half trading in the core business, it was unclear how much of that would come through in the first half.

The City had pencilled in around 40% profits growth to £35m, but JD Sports smashed that target yesterday, with the interims showing amazing 82% profits growth to £46.6m. And it would have done even better if its outdoor division had pulled its weight (albeit first-half losses of £4.5m were slightly reduced) and there hadn’t been foreign exchange related gross margin pressure in Europe.

And although there was no detailed update on how it is trading now, even the famously lugubrious Peter Cowgill, its executive chairman, noted that, given the demanding comps after two years of strong like-for-like sales growth, “we are encouraged by the positive nature of the trading to date in the second half across our core fascias”.

Exciting stores

A few years ago JD’s great rival Mike Ashley threatened to crush JD Sports (although he wisely kept a strategic stake in the business), but, after achieving over 10% like-for-like sales growth in the first half (in a tough trading period for fashion retailers), the core JD Sports business must be doing something right.

You only have to look at the strength of the visual merchandising, the retail theatre and the digital innovation in the recently opened JD Sports 22,000 sq ft flagship store on Oxford Street to see why the big sports brands like Nike and Adidas see JD as their global retail partner of choice and why JD has such good access to their top management and to their new ranges.

“It offers the consumer new products in exciting stores, backed by strong marketing and a good multichannel operation”

Nick Bubb

It offers the consumer new products in exciting stores, backed by strong marketing and a good multichannel operation, so it’s no wonder that JD is doing so well and dominates the sports footwear or trainer market.

By contrast, Sports Direct has a very up-and-down relationship with the big sports brands, who hate the way that its products are sold at low prices in cramped stores, alongside lots of own-label ranges. And it’s no wonder that Sports Direct is now investing in its own big city centre superstores and trying to move a bit more upmarket.

Of course, Sports Direct is too big and too powerful for the brands to ignore it completely and its own business model is highly profitable, with a different sales mix and more of a focus on sports equipment (particularly online), as opposed to trainers (which are over half the JD Sports’ core business).

Interestingly, JD has so far not been able to translate its success into the outdoor sports business (principally Blacks and Millets) and has found the market to be more weather dependent and more price sensitive than it expected. But it is persevering, partly because of the extra brands like North Face that it can access from suppliers like VF Corporation.

Investment in stores

With so much going right at JD and after another useful upgrade of full-year profit forecasts it is surprising that the JD share price has not taken off even more, but the comps are tough in the second half and the miserly increase in the interim dividend implied a need to keep JD’s firepower intact for another big acquisition.

Cowgill is certainly acquisitive by nature, but he looks at far more deals than are actually progressed and the real focus of the business is on investing in new stores, both in the UK and in Europe, given the high returns being achieved.

Maybe the good times will come to an end one day, but JD is certainly not complacent, and it is clear that Cowgill has built up a very good, if low profile, management team below him to run the business day-to-day.

Given the solid backing from majority shareholder Pentland Industries (which owns the Berghaus brand), investors in JD Sports have certainly had a very good run and it is impressive to see that its current market capitalisation around £1.75bn, which is about the same as Halfords and Debenhams combined.

  • Nick Bubb has been a leading retailing analyst for over 30 years. He is a well-known commentator on UK retailing and is a founder member of the influential KPMG/Ipsos Retail Think-Tank.