Rudderless JD Sports Fashion PLC (LSE:JD.)’s evidently shrugged off the uncertainties and fresh scrutiny, with the so-called ‘King of Trainers’ today impressing the market with record trading results.
The retailer’s shares rose by some 7%, to 114.2p, despite revelations that following the ousting of Peter Cowgill as chief executive and chair the retailer has launched “a number of independent investigations into certain matters”.
Under the interim team of Helen Ashton and Kath Smith, acting chair and chief executive respectively, the company this morning announced a £654.7mln pre-tax profit (or £947mln before tax and exceptional items).
Cowgill got the boot nearly a month ago, so perhaps today’s financials don’t cover some of JD’s most recent speed bumps, nevertheless, the interim management team retain prior guidance for 2022.
JD said it expects profit for the next financial year to be in line with 2021’s performance.
With the share rallying in London, it appears investors are buying the company’s confidence, albeit not everyone is convinced that current trading levels can be kept up.
“An uncertain economic outlook and a cost-of-living crisis for consumers provide a tough backdrop,” which weren’t included in today’s results as they covered the 12 months prior to the war in Ukraine,” said Keith Bowman, investment analyst at Interactive Investor.
“The loss of the group’s CEO and run-ins with the Competition and Market Authority cannot be ignored, whilst Brexit and supply chain challenges have offered their own hurdles.”
JD’s regulatory position may indeed see further scrutiny in the coming weeks and months as it noted an ongoing “review of regulatory compliance issues” in the wake of Cowgill’s departure, while the Evening Standard this afternoon reported that external advisors would carry out investigations and that JD would need to rebase its governance, risk and control environment.
Then there’s the matter of making permanent hires for CEO and chair, meanwhile, Cowgill is in talks about his severance. On the bright side, JD finds itself sitting on an acquisitions war chest, according to stockbroker Peel Hunt.
One man band
Since Cowgill’s exit nearly a month ago, JD shares tumbled and remain close to 10% lower even after today’s boost.
But, according to Peel Hunt, today’s numbers prove that “JD was not a one-man band.”
“Numbers like this show its intrinsic strength and the shares now discount far too much bad news; today’s numbers and guidance should reassure,” the broker said in a note.
AJ Bell investment director Russ Mould, meanwhile, said JD’s incoming chief executive will “inherit a strong business with fingers in many pies.”
War chest for more acquisitions
JD’s financial year was boosted by deal-making and it’s tipped to continue this bolt-on strategy.
Last year, it bought DTLR, a US fashion retailer which opened JD to key consumer demographics in America’s East Coast, described as a highly important influence in the Unites States’ ‘sneaker’ market.
Peel Hunt analysts believe the acquisition of DTLR is “running a healthy 13% margin,” while Shoe Palace is running even higher.
With a healthy cash balance of nearly £1.2bn, what comes next for JD could hinge on the appointment of a new chief executive.
“I would say at the moment for any business that is sat on good cash reserves it’s a really opportunistic marketplace to pick up businesses with value,” said Julie Palmer, company restructuring specialist Begbies Traynor (AIM:BEG).
“Even if you’re having to look a little bit laterally in terms of something that wouldn’t necessarily fit the business model, like Schuh, for example.”
“For a business-like JD that run themselves well and are not over-leveraged and sat on a decent amount of cash, there’s plenty of opportunities, especially given there may be businesses that we’re not willing sellers in the past but will be at the moment.”
While there still remains an element of uncertainty surrounding the leadership at JD, with analysts predicting it could take anywhere between 12-18 months to fill the top seat, it is in a strong position to continue its global expansion and could find some surprising deals along the way.