Shares in JD Sports are nicely higher this morning as the company upgrades FY profits guidance for the second time in four months. The high street retailer, known for its trainers and athletic leisurewear, upgraded its FY expectations to £300m, a gentle nudge above previous top end expectations of £270m to £295m. The latest guidance uptick follows a sustained increase in like-for-like sales growth, now +3% since July, and runs against a trend of weakening sales from a number of other high street fashion outlets.

Its stores’ appeal to younger generations (see ‘Millennials’) has helped fuel outperformance versus peers which are more geared towards their parents, perhaps reflecting the latter’s increasingly cash-conscious disposition in the face of subdued wage growth and high levels of inflation. JD’s strong online platform likely also helps appeal to the digital-age shopper, beating out high street stalwarts whose hard to navigate websites frequently feel like a smorgasbord of sellers. Having over 850,000 Instagram followers is also sure to appeal to the smart phone generation.

The company will now look to maintain its current financial performance into 2018, building upon a positive Christmas period in order to close out the financial year on strong footing. Investors will be keenly awaiting full-year results on 17 April to dissect whether physical purchases continue to be eclipsed by online, reflecting the ongoing trend of a high street increasingly reliant on e-commerce for strong growth.

While JD shares touched a fresh 7-month high shortly after the open, trading just shy of the 400p mark, the surge in online-only retailing competition (ASOS, Boohoo) remains a headwind for the traditional seller and is reflected in today’s share price action; JD shares are still trading at a distance from 2017 and all-time highs of 463.5p, from where they fell in June after the company failed to upgrade profit forecasts following a strong opening to the financial year. After learning a hard lesson last summer, might today’s upgrade be a reflection of confidence in the outlook, or merely an obligation to give markets what they want?

The shares are shying away from the 400p mark as investors still need to know how much of this sustained sales growth has arisen via bricks and mortar and how much website sales contributed to sales, and subsequently whether further upgrades will be possible to help engineer the breakout required to revisit 2017 highs.

Henry Croft, Research Analyst, 16 January 2018