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RBC slash target price for retailers JD Sports, Superdry and Halfords

Published: 09:23 16 May 2022 EDT

Royal Bank of Canada -

Royal Bank of Canada (TSX:RY) dished out a host of target price slashes for retailers, with JD Sports Fashion PLC (LSE:JD.), Superdry PLC (LSE:SDRY) and Halfords Group PLC (LSE:HFD) all getting cuts.

JD retained an outperform rating, although the target price was cut from 250p to 210p by the broker.

RBC adds that product availability, which has been the tightest in the US market, should improve from June onwards.

Analysts see possible upside to the first-half profit before tax, closer to £400mln as opposed to roughly £300mln.

As well as that, JD is seem to be continuing to make structural market share gains due to its strong retailing skill and buying skills.

JD is also a beneficiary of the major sportswear brands and product segmentation strategies, the broker argues.

Elsewhere, Superdry had nearly 40% slashed off its target price, down to 280p from 415p, despite the broker believing its improved product offer, execution and margins have been underappreciated by the market.

Like JD, however, it retained its outperform rating despite the target price cut.

Superdry last week reported softer than expected full-year sales but continued to make improvements in retail gross margin.

Analysts at RBC argued that there is still ground to be made in its brand turnaround.

An easing of COVID restrictions in major European markets such as Germany will likely continue into the first quarter of the financial year, which Superday will benefit from.

As well as that, the launch of its new digital platform in the UK should provide an easier customer journey online, the broker noted.

Finally, Halfords also kept its outperform rating with RBC but saw its target price cut from 460p to 330p.

RBC believes that while car traffic remains lower than pre-pandemic levels, the two parts of Halfords’ business should offset each other in the case of a recession.

If oil prices continue to remain high and consumers use their cars less, its cycle business should benefit, the analysts believe.

However, that depends on the ability to maintain a healthy stock level given supply chain issues and the shortage of some key components.

Nevertheless, the broker does believe Halford's good relationship with suppliers, stock management levels and a large number of its own-brand products should help it navigate any issues.

Halfords’ garages will benefit from the fact that there are more older cars on the road, amidst chip shortages and cost-of-living crisis which are expected to mean fewer new cars are bought by consumers.

RBC notes that the business stocked-up ahead of time to mitigate the impact of cost inflation, highlighting specifically that Halfords had contracted all of its freight for the next two years, which it anticipates would not have increased at the same level as the current shipping rate.

Halford also bought all its energy for the year in October, and as a result should have saved a considerable amount versus spot, the broker highlighted.

As well as that, RBC said it is well-positioned on pricing, benefiting from cost savings and eliminating unnecessary promotions, particularly in the pricing of its cycles.

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