JD Sports still struggling with LFL declines, but Shore Capital stays positive

(Sharecast News) - JD Sports' update this week revealed that underlying sales continued to struggle in the second quarter, but Shore Capital maintained a 'buy' rating on the stock, citing a "depressed" valuation. Total revenues at the sports apparel and footwear retailer grew 2.2% in the second quarter, helped by continued store rollouts and conversions/relocations. However, like-for-like sales were down 3%, with LFL sales in Europe, the UK and North America down 0.4%, 6.1% and 2.3% respectively.

Nevertheless, Shore Capital highlighted that weakness across the UK and Europe was mainly due to tough comparatives with last year, which had a boost from the Euros football championship. Meanwhile, the decline in North America was an improvement from the 5.5% drop in the first quarter.

While the company guided to adjusted profit before tax in line with the consensus range of £852m-915m, Shore Capital noted that consensus forecasts have fallen by around £25m since the last update.

However, the broker added: "Despite this expected drop in profits (from £923m LY) the business remains highly profitable and cash generative, with the latter reflected in the newly announced £100m share buyback. This buyback brings the total for the year to £200m, c4% of market cap."

The stock currently trades at just 7.2 times forward earnings, which "continues to look depressed versus the retail sector", Shore Capital said.

"Thus, despite the challenges clearly present in this latest trading statement we continue to have a positive view on the shares. The strength of the brand, combined with the strong margins and good cash generation feed into positive medium-term prospects for the company, however, in our view, investors await signs of LFL recovery before the business will merit a re-rating."

The stock was 2.6% higher at 96.5p by 1256 BST.