Faced with the adverse economic environment, the sports retail industry is fiercely competitive. All the companies involved take various measures to maintain competitive advantage and improve profitability. When it comes to whether a corporation is worth to invest, financial analysis is greatly needed, since it can provide sufficient information to investors from different viewpoints. After in-depth financial analysis of JD Sports Fashion (JD), one of the leading specialised sports retailers in UK, it can be concluded that JD is worthwhile for a pension fund to invest.
Strategy Analysis 8
Financial Market Strategy 12
Financial Analysis 12
Operating Activities Performance Product-Strategy 13
Working Capital Management 15
Non-current Assets Management 16
Financial Leverage Ratio Analysis17
Cash Flow Analysis 20
Sales Growth 23
Net Working Capital to Sales Ratio24
Net Non-current Assets to Sales Ratio 24
After Tax Cost of Net Debt 25
Conclusion and Recommendation27
Since established in 1981, JD has become one of the leading sportswear retailers in UK and Ireland. To develop sufficient evidences for whether to invest JD, the report will firstly give a brief description of JD. Secondly, it will conduct JD’s PEST and SWOT analysis. Thirdly, JD’s historical performance and the future prospects will be examined both from its strategy analysis and financial analysis compared with its major competitors, namely, Sports Direct International (SPD) and JJB Sports (JJB). Moreover, it will provide evaluation and sensitivity analysis to estimate JD’s equity value. Finally, conclusion and recommendation will be provided.
2. Company Profile
JD, a FTSE 250-listed firm, is one of the leading retailers and distributors of sport and athletic-inspired fashion footwear, apparel and accessories. It mainly operates in three segments – sports fascias, fashion fascias and distribution business. JD covers a range of retail brands, such as JD, Chausport, Scotts and Canterbury (JD Sports Fashion, 2011). Though, affected by adverse fiscal changes and macro-economic environment, specifically, the rising youth unemployment rate and VAT, JD reported strong profits due to improved European market performance, diversified store portfolios and efficient stock management (Wood, 2011). Consequently, total group revenue achieved around 13% growths with less 0.9% net sales in the UK and Ireland (Figure 1), indicating relative strong performance in newly opened market of France and Spain (JD Sports Fashion, 2011). Apart from that, Fashion Fascias performed fairly better than Sports Fascia last year in terms of revenue growth rate, on a like for like basis, +3.0% and -1.6%, respectively. Furthermore, with more participation of low margin distribution business, group gross margins dropped by 0.2%.
Likewise, another UK’s sportswear market leader, SPD operates in the segments of retail and brand. Almost 90% of revenue comes from retail segment, which mainly provides sport and leisure apparel, equipment, footwear and accessories under various brands. Apart from that, more than 10% of the revenue derives from brand segment by wholesaling and licensing business (Sports Direct International plc, 2011). In 2011, SPD achieved 10.2% growth in sales revenue mainly from its pile ‘em high’, sell ‘em cheap’ strategy (Ayling, 2011). With more...