JD Sports Fashion continues to play in a league of its own. While its rivals JJB Sports and Sports Direct International have spent the downturn constrained by their debt and find themselves embroiled in a price-fixing enquiry by the Office of Fair Trading, JD carries on much as before.
Recession has even enabled it to raise its game. This year, JD took its first steps into continental Europe with the purchase of Chausport, the 76-store footwear chain in France. The deal was struck at a knockdown price — £10 million — and gives JD scope to extend Chausport’s reach from northern France into the country’s bigger cities further south. More immediately, it will give JD considerably more buying power with the likes of adidas and Nike.
Elsewhere, JD has picked up two of the biggest brands in rugby at bargain levels — buying KooGa and, more recently, New Zealand’s Canterbury, for £8 million between them. That opens up an entire new customer base and adds to JD’s stable of brands that have strong international appeal. The company said yesterday that it had drawn interest from overseas retailers and wholesalers who are interested in stocking its kit, and it is mulling which territories to enter first and whether through joint ventures or licensing deals.
If there is a disappointment, it was not with yesterday’s first-half numbers. At £14.2 million, pre-tax profits in the six months to August 1 were up 14.5 per cent, modestly ahead of forecasts. JD retains net cash — about £6 million — despite its acquisitions, while the dividend was raised 6.5 per cent.
Rather, it was the evidence of a slowdown in underlying sales that unsettled. Like-for-like gains have dropped from 3 per cent earlier in the year to 0.8 per cent in the most recent six weeks. That performance, combined with gross margins that are slightly below target, meant that current-year profit forecasts were left on hold, a break with recent tradition, whereby JD’s results are usually accompanied by profit upgrades.
A change in the mix of brands sold by JD’s Scotts fashion chain — which caused it to clear stock — will not have helped. The bigger constraint came from Bank, which is loss-making. It has only 57 stores, implying strong growth potential relative to the 327 run under the JD fascia, but the formula seems in need of more work.
At 594p, up by one quarter since July, the shares have little to drive them higher for now. However, at seven times earnings, neither can they be deemed too steep. Hold on.
Ricardo
You might not guess from yesterday’s numbers that Ricardo is an engineering consultant to the motor industry. Full-year revenues were down 2 per cent, pre-tax profits up 1 per cent and earnings per share ahead 13 per cent. Equally, Ricardo’s order book is no lower than it was a year ago.
True, the figures were flattered by exclusion of its loss-making German exhaust business, which has been put up for sale. But that underlying resilience is testimony to Ricardo’s longer-term strategy of diversification: not only away from Detroit’s Big Three (now only 3 per cent of sales), but more generally away from passenger cars towards lorries, military vehicles and clean energy.
That tactic has kept it busy with work from next year’s introduction of tightened American emission standards for big lorries. Its defence division has benefited from the refitting and redesign of patrol vehicles used in Iraq and Afghanistan to cope with mines and roadside attacks. And, although still small, its clean energy division is drawing interest in exploiting engineering techniques from the automotive industry to improve the reliability of wind turbines.
For now, Ricardo remains cautious. It has had no new project cancellations since March — the cause of this year’s profit warning — but expects trading in the first six months of its new financial year to be “substantially lower” than the last.
But the longer-term outlook is strong, not least because heavy job cuts by carmakers suggest that they will have to turn to consultants if they are to meet onerous deadlines for emission reductions, particularly in America, where President Obama has mandated a 36 per cent rise in fuel economy for all new cars and lorries by 2016. At 271½p, or 14 times current-year forecasts, and yielding nearly 4 per cent, buy.
CVS Group
CVS Group, Britain’s biggest owner of veterinary practices, bears more than a passing resemblance to Dignity, the quoted undertaker. Most immediately, they share the same chairman and financial adviser.
But CVS has also borrowed its business model, reaping the benefits of scale from consolidating a highly fragmented sector that is dominated by small private companies. So it might come as no surprise that CVS has now also entered Dignity’s niche, albeit the animal version. This year, it bought its first pet crematorium and has plans to pick up more. Given that vets dispose of about 50 per cent of cats and dogs, that move makes sense and enables CVS to capture some of the margin that previously it had given away.
But if the shares rose 17 per cent yesterday, that was because full-year results show that trading has got no worse. Having been up between 4 per cent and 5 per cent before the downturn, like-for-like sales have stabilised at 2 per cent. That indicates the pressure on CVS’s revenues (largely from pet owners cutting back on discretionary treatments for worming and fleas) has abated and may even start to reverse. In the interim, its scope to acquire practices, which can be funded from cashflow, is undiminished. At 167p, or 11 times earnings, hold on.
