Is JD Sports stock a buy after the dividend is scrapped?

Shares of JD Sports Fashion (LON: JD.) gapped more than 9% higher today despite the fact that the sportswear retailer scrapping its dividend following a plunge in pre-tax profits. 

JD Sports said today it plans to scrap its dividend following the company’s earnings report that showed a strong decline in profit and warned about the uncertainty of future outlook. The sportswear retailer reported revenue of £2.5bn in the 26 weeks through 1 August, 6.5% lower compared to the year-ago period.

Pre-tax profit dropped by £96.7m to £61.9m during that period, while reported net cash was £764.9m, compared to £118.1m from last year. Basic EPS were 3.85p, down from 9.67p. In the JD Sports’ update, it is clear that the company’s stock had a long period of chaotic trading.

However, the Bury-based company stood strong during this turbulent period and managed to retain over 90 per cent of total revenue, likely thanks to the strength of the brand. Still, JD Sports admitted that higher health and safety-related expenses and increased online services costs hurt its profit. 

Almost all of the company’s stores shut down by 23 March and reopened at the end of June. Following the reopening of the stores, increased demand fueled the increase in sales, however, JD sports noted that this trend was short-lived and that footfall stayed much lower than normal.

The retailer withheld rent payments for some of its worldwide stores.

“We firmly believe that it cannot be equitable to pay full contractual rents when there is no realistic prospect of any income from a store,” JD Sports said.

It added that the coronavirus crisis had pointed out the significance of strong online services and that it had invested £2m in new equipment and fixtures.

Shares of JD Sports moved up over 9% in early trading on Tuesday. However, the sellers have managed to erase a portion of gains, pushing the stock price lower. The trading update was mostly dominated with negative elements but investors seem to believe that the situation is better-than-expected for JD Sports. 

Still, shares have soared over 30% in the past two months. As the dividend is scrapped, this may push some investors away from the JD Sports stock. Technically, the buyers will target a new all-time high above GBX890, while the area between GBX720 – GBX750 hosts support. 

British retailer JD Sports said it would scrap its dividend after the latest earnings report that showed a sharp fall in profit during the coronavirus crisis. Shares moved higher on a better-than-expected trading update, however the latest surge in price and no dividend may make the JD Sports stock unattractive for investors. 

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