JD Sports raises earnings forecasts thanks to high trading levels

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JD Sports Raises Earnings Forecasts After High Trading Levels During Black Friday & Christmas Season

  • JD Sports estimates at least £875m in net profit before tax will be earned this year
  • Peter Cowgill urges inbound surge in national insurance to be reconsidered
  • The company said the US $1.9 trillion aid package boosted profits by £100 million

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Retailer JD Sports has upgraded its annual earnings forecasts for the second time in four months after solid sales during the Black Friday and Christmas seasons.

The blue-chip publicly traded company revealed revenues were more than 10 percent higher than the comparable period in 2020, despite the coronavirus causing significant problems for the group.

These include disruption to the supply of certain branded goods and trade restrictions in Europe and Southeast Asia, which bosses at the company said JD is “well placed to manage.”

Growing sales: Blue-chip publicly traded JD Sports revealed revenues in its like-for-like business were more than 10 percent higher than the comparable period in 2020

Growing sales: Blue-chip publicly traded JD Sports revealed revenues in its like-for-like business were more than 10 percent higher than the comparable period in 2020

It now forecasts total pre-tax profits of at least £875 million for the 12 months to January 29, up £65 million above average current market expectations.

About £100 million of this amount has been attributed by the sportswear chain to the US government’s $1.9 trillion emergency aid package approved by President Joe Biden last March.

The group said it expects similar levels of earnings next year, as long as the UK and North America don’t see additional trade restrictions and take into account the benefit of the US stimulus package and the additional cost of employment in the UK.

Executive Chairman Peter Cowgill said: ‘The commitment of our colleagues is critical to our success and I would like to thank everyone in our various companies for their significant contribution to delivering this outstanding achievement.’

But he warned that the forthcoming 1.25 percent hike in national insurance rates from April, combined with rising wage costs, will have a negative impact and called on Chancellor Rishi Sunak to reconsider the impending hike.

He told the Evening Standard: ‘The pressure on the business community this year, at a time when you already have such wage inflation, is quite strong.

Expansion: JD Sports has bought numerous companies in the past year, including Poland-based Marketing Investment Group and 80 percent shares in Deporvillage and Cosmos Sports

Expansion: JD Sports has bought numerous companies in the past year, including Poland-based Marketing Investment Group and 80 percent shares in Deporvillage and Cosmos Sports

Expansion: JD Sports has bought numerous companies in the past year, including Poland-based Marketing Investment Group and 80 percent shares in Deporvillage and Cosmos Sports

‘You have the imposition of the national insurance schemes, and you also have the increase in the corporate tax. That has consequences for the retained earnings for investments.’

The UK government is introducing the increase in National Insurance with the aim of funding social care and helping to reduce the backlog of the NHS, where around 6 million people are currently waiting for routine hospital treatment.

Think tank The Resolution Foundation estimates that this tax increase will add another £750 a year to the average tax bill of those in the top half of the income bracket.

But JD Sports’ performance during the pandemic puts it in a much stronger position than many other companies and has allowed it to start an expansion drive by buying other sportswear companies.

In 2020, it bought an 80 percent stake in Spanish online sporting goods company Deporvillage and Greek retailer Cosmos Sports, as well as a majority stake in retro fashion retailer 80s Casual Classics and Poland-based footwear and apparel distributor Marketing Investment Group.

However, the Competition and Markets Authority ordered the group to sell the Footasylum brand, fearing the acquisition would reduce competition in the footwear industry and lead to higher prices and less choice for customers.

Nevertheless, Keith Bowman, Investment Analyst at Interactive Investor, said today that the brand’s track record of expansion and acquisitions is strong, with growth in the US proving to be the most recent focus.

Online sales have led to a good disruption to the retail chain due to the JD weather pandemic, while a previous logistics deal with Clipper underscores its intention to grow the channel further. All in all, and helped by the current revaluation in earnings expectations, the analyst consensus is likely to remain very favourable, indicating a strong buy.”

Shares in JD Sports closed 3.3 percent lower at 211.5 pence on Wednesday, though their value is still up just under a quarter in the past 12 months.

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