JD Sports Fashion PLC (LON:JD.) posted a better-than-expected 55% jump in full year pre-tax profit as the sportswear retailer rolled out more stores across the globe.
Profit before tax and exceptional items rose to a record £246mln in the year to 28 January from £158mln the previous year.
Revenue gained 31% to £2.3bn from £1.8bn as the company delivered like-for-like sales growth of more than 10% in the core Sports Fashion business.
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"The foundation of this success remains our core Sports Fashion fascias where JD's continued strength in its core markets is increasingly being complemented by momentum in our international development, with a net increase of 54 JD stores across mainland Europe during the year,” said chairman Peter Cowgill.
However, Cowgill acknowledged that inflationary pressures arising from Brexit may impact the latter part of the current financial year.
A weaker pound has been pushing import costs higher for UK retailers and prompting consumers to spend less on non-essential items like fashion.
With that in mind, the company said it would be “unreasonable” to expect like-for-like sales growth in the Sports Fashion business to be maintained at the same level in the current year.
The company has been expanding internationally to reduce its exposure to Brexit risks. International expansion accounted for more than 50% of capital expenditure, which rose by £9.7mln to £35.7mln outside of the main UK and Ireland markets.
Going Down Under ...
The group opened two JD Sports stores in Malaysia during the year and said it plans to open its first store in Australia shortly.
Despite the inflationary pressures, the gross margin rose to 48.9% from 48.5%, with improvements in both the Sports Fashion and outdoor divisions.
In the outdoor clothing arm, Blacks - which owns the Millets chain - reported a profitable outturn for the first time since JD Sports paid £20mln to bring the business out of administration in 2012.
In November last year, JD Sports also agreed to buy Go Outdoors for £112mln, along with £11.4mln net debt from private equity owners from YFM Equity Partners and 3i Group.
The company said the deal is currently under review by the Competition and Markets Authority, which has said Go Outdoors will need to operate separately from the rest of the outdoor businesses.
The dividend was raised to 1.55p from 1.48p and the company ended the period with net cash of £213mln, compared to £209mln the prior year.
"Whilst we must recognise that there are external influences which may impact the latter part of the year, notably inflationary pressures arising from Brexit, the board remains confident in the robustness of the JD proposition and believes that the group is well positioned for further profitable growth,” Cowgill said.
Profit exceeds estimates...
Shore Capital said the pre-tax profit was comfortably ahead of its forecast of £225.3mln. The broker highlighted the turnaround of the outdoor division, which it said reflected lower inventory markdowns, a more simplified operational management structure and an improved camping proposition.
The Sports Fashion business was also supported by lower levels of markdowns on inventory as well as a stronger euro against the pound in its European operations on products sourced from the UK, ShoreCap added.
"Our thoughts are that JD is a retailer with an outstanding and well-defined proposition, as demonstrated by the financial progression during the year. No guidance has been provided thus far but we would expect to upgrade our forecasts for FY2018 and beyond, we remain bullish on the company as we believe it is one of the strongest plays in the retail sector. Buy."
The pre-tax profit also beat Cantor Fitzgerald's estimate of £225mln. The broker said it was an "excellent year" for JD Sports and gave the stock a 'buy' rating.
"Fiscal year 2017 has been a great year for JD, not only in light of the competitive market place over the period but also the very tough comparatives from last year (low double digit growth). JD has once again confirmed its leadership and operational effectiveness in the market.
"The core UK Sports division is carrying strong momentum as it continues to advance its already best in class sports apparel and footwear offer. JD is now fully recognised by the leading global sportswear brands as a major European partner and player and the opportunity for further international growth in Europe and beyond is significant."
Cantor, however, noted that risks to JD Sports include weakening consumer spend in key markets, adverse moves in raw material prices and foreign exchange rates, competitor expansion and unseasonal weather.
Shares gained 5.02% to 427.0p in morning trading.
-- Adds share price reaction, broker comments --