FTSE recoups some losses after a tough week, JD Sports reports full year results
Sophie Lund-Yates, lead equity analyst, Hargreaves Lansdown: “The FTSE 100 has had a tough week, but it has continued to recoup some of its losses in the final trading day of May. Housebuilding stocks have failed to help these efforts despite positive news around house prices. There’s also support for global markets as bond yields retreated slightly, coupled with weaker US GDP data. This has increased hopes that the Federal Reserve will in fact cut interest rates at least once before the end of the year.
Sports Direct owner, Frasers Group, has increased its stake in Hugo Boss once more, taking the total exposure to almost 14% of the fashion retailer’s market share. There are inevitably questions surrounding the motivations for this, especially considering Frasers Group already has an eclectic mix of retailers under its roof. Should a takeover offer be brewing, Frasers investors will want to see an iron clad plan for these assets – which is the element that’s been sorely missed from previous acquisitions. Of course, there’s no guarantee a buyout is the endgame, but it’s something the market will be watching with keen interest.
Fintech Klarna has seen its consumer credit losses jump 60% to $110m in the first quarter. This follows an aggressive expansion effort into the US, where it seems its underwriting model is still being perfected. At the group level, net losses are moving in the right direction, as the use of AI has been deployed to reduce costs. On top of that, revenue’s also being pushed upwards. All things considered, the group’s doing well, but as a highly economically sensitive stock story, there’s a lot to monitor from here.
Lacklustre US GDP has pushed the price of Brent crude below $82 a barrel, as the demand outlook is weighed up. Considerable uncertainty about the timing of interest rate cuts also lingers, which is piling anxiety into the market.”
JD Sports, Guy Lawson-Johns: “Results came in later than expected and pointed to continued volatility in the market. Underlying profits landed within their previously downgraded guided range, marking an 8% fall from last year. This won’t blow investors away, but it’s encouraging following the disappointment of the January trading warning. It also reiterated its guidance for profit to be in the £955-1,035mn range this year, despite a 6.4% drop in sales in its home market in the first quarter.
Achieving that will be a tall order if challenging markets prevail, but through the store rollout program, the company is taking proactive steps to shape its future. Since joining in 2022, CEO Régis Schultz hasn’t shied away from ambitious expansion plans in North America and Europe. With 200 new stores opened last year and another 200 planned this year, Schultz is clearly focused on growth. Fuelled by £0.5bn of additional capital spend, expansion isn’t coming cheap, but new stores exceeding internal sales expectations by 20% show early signs that the investment is working.
With growth seemingly not coming quickly enough, the latest billion-dollar Hibbett deal will see the British footwear retailer accelerate its North American growth plans. Adding over 1,000 stores in a key growth market is an attractive proposition, and while the focus on acquisitions may leave little room to increase the dividend, gearing up for future growth could be the best use of capital.
The opportunity in the US is hard to ignore, with four times the sportswear sales of European markets combined last year. Given JD’s strong track record of acquisitions in the US, bolstering its presence in the southeastern region makes strategic sense. However, weaker outlooks from brands like Nike and Puma illustrate the continued demand challenges being faced. JD Sports’ strategy execution is impressive and the opportunity for growth is there, but with consumer sentiment and demand still looking hazy, building out capacity ahead of demand is a significant risk to take.”
